What happens if a primary borrower defaults on a co-signed loan?

When a primary borrower defaults on a co-signed loan, the co-signer has liability for the debt. This means that the lender can pursue the co-signer for repayment of the loan in addition to the primary borrower. The co-signer essentially agrees to take on the responsibility of the debt in the event that the primary borrower fails to make payments. This arrangement is intended to provide additional security for the lender, as the presence of a co-signer lowers the risk of non-payment.

The implication of this liability is significant because it means the co-signer's credit can be negatively impacted if the primary borrower defaults and no payments are made. Additionally, the lender can seek repayment from the co-signer, potentially leading to legal action or other measures to collect the debt.

Understanding this responsibility is critical for individuals considering co-signing a loan, as it involves a commitment that can affect their financial situation and creditworthiness.