Get a free, no obligation personal loan quote with rates as low as 6.99%
Get Started You can apply with no effect to your credit score

It is natural to want to help a loved one who is trying to get ahead in life and in need of a loan. As such, when they come to you with pen in hand, as it were, and a request to cosign on a loan for them, your thoughts on the proposal might vacillate back and forth as you weigh your desire to help them achieve their dreams with the financial responsibility that that help might entail.

After all, it’s not like you’re loaning them $50 with a wink and a nod and a reasonable expectation of repayment; you’re betting that they are going to be able to keep it together financially over the long haul, and if you lose you will be liable for the entirety of the chit that is still outstanding. Clearly, not something entered into lightly. If you do choose to lend your name and good credit rating to their cause, you have both rights and responsibilities that you should be fully aware of before entering into any agreement.

Weighing the Risks and Rewards

Not to put too fine of a point on it, but cosigning for someone else’s loan has a host of downsides, and very few upsides with the possible exception of the warm and fuzzy feeling you get when you help your kid get their first car, or assist a sibling in financing their first house. That being said however, warm glowing feelings rarely last longer than the terms of a note, so it behooves you to be very proactive throughout the negotiating of the contract to that day when you receive your discharge of debt letter in the mail.

Your Responsibilities as a Cosigner

Regardless of what is being purchased, whether it is a credit card, car loan, mortgage, or business financing, once you have affixed your signature you are a full blown borrower against the note. Many people erroneously assume that this arrangement means that the lender will approach them only as a last resort, but the reality is that you can be approached at any time and doesn’t need to demand payment from the primary borrower first. As such, cosigning for someone’s loan isn’t an esoteric, theoretical possibility of financial responsibility, but rather the potential for having to come up with real cash when that first payment is missed.

Check out our piece on joint mortgages.

Your Rights as a Cosigner

Since you bear all of the responsibility as a cosigner on a note, you also accrue all the rights associated with being a borrower as well. As such, when you sign for a loan the lender must fully apprise you of the terms and conditions including interest rates, duration, and other credit costs that come with the obligation. Remember, just as if it were your own loan, if the terms are unsatisfactory you can always walk away from the negotiating table and find another deal.

Once you have agreed to the terms and signed the personal loan papers, you are now entitled to all information about the account at any time. Also, you should be alerted to account activity such as when the other party makes payments or misses a payment, and you will be notified if the terms of the loan are altered in any way.

The rules are different as applied to business loans however. If you have cosigned on your brother-in-law’s Pub and Steak-fest sandwich shoppe for instance, you might not receive all copies of the loan documents. That’s because the Canadian Bankers Association (CBA) has developed and adopted a model code of best conducts for conducting loan deals between banks and small to mid-sized businesses looking for financing in Canada. Before assuming any responsibility for a business loan therefore, you should check out CBA’s website for fuller discussions of your rights as a business loan cosigner.

Information is Power

According to the Financial Consumer Agency of Canada (FCAC), avoiding the pitfalls of cosigning means asking questions, understanding the answers, and staying informed on the status of the account at all times during the life of the loan. Communication with our primary borrower is also critical, so you are both fully comfortable with the terms of the agreement, and both understand the stakes that involved in the event of a default. If you have questions or concerns about your rights as a cosigner on personal or business loans, be sure to check out the information you need on FCAC’s website.

Don’t forgo your desire to help out a loved one in need of a cosigner, but get the information you need first so you know exactly what you are getting yourself into.

Caitlin Wood, BA avatar on Loans Canada
Caitlin Wood, BA

Caitlin Wood is the Editor-in-Chief at Loans Canada and specializes in personal finance. She is a graduate of Dawson College and Concordia University and has been working in the personal finance industry for over eight years. Caitlin has covered various subjects such as debt, credit, and loans. Her work has been published on Zoocasa, GoDaddy, and deBanked. She believes that education and knowledge are the two most important factors in the creation of healthy financial habits. She also believes that openly discussing money and credit, and the responsibilities that come with them can lead to better decisions and a greater sense of financial security.

More From This Author

Special Offers

More From Our Experts
Loans Canada places No. 228 on The Globe and Mail’s fifth-annual ranking of Canada’s Top Growing Companies.

By Caitlin Wood, BA
Published on September 29, 2023

Loans Canada is excited to announce it has made it onto the Globe and Mail’s Top Growing Companies list for the second year in a row.
Finder Awards Finalists: Personal Loans Customer Satisfaction Awards 2023

By Priyanka Correia, BComm

Loans Canada is happy to announce it received the finalist award in the Best Personal Loan Search Platform category.
Beware of Fraudulent Lenders Impersonating Loans Canada

By Caitlin Wood, BA

A note to our clients about fraudulent lending practices and illegal upfront fees.
Best Homeowner Tax Credits In Canada

By Lisa Rennie

You have to deal with a lot of bills as a homeowner. Thankfully, there are many homeowner tax credits in Canada to help reduce the costs.
Tax Season: Getting To Know A T1 General Form

By Savanna Craig

The T1 General Forms are an important part of filling out your taxes. Find out how to file the T1 General Form this year.
How To Invest A $8,000 FHSA Contribution Safely With Low Risk

By Tony Dong, MSc, CETF

The Canadian housing market is red-hot, making the dream of homeownership seem out of reach for many. However, aspiring homeowners now have a new ally...
What Is Negative Amortization?

By Jessica Martel

Thanks to multiple interest rate hikes, homeowners are experiencing negative amortization. Find out how it can affect you, and what you can do about i...
Income Assistance In New Brunswick 2024

By Mark Gregorski

The province of New Brunswick provides a comprehensive social assistance program for residents called Income Assistance.

Recognized As One Of Canada's Top Growing Companies

Loans Canada, the country's original loan comparison platform, is proud to be recognized as one of Canada's fastest growing companies by The Globe and Mail!

Read More

Why choose Loans Canada?

Apply Once &
Get Multiple Offers
Save Time
And Money
Get Your Free
Credit Score
Expert Tips
And Advice

Build Credit For Just $10/Month

With KOHO's prepaid card you can build a better credit score for just $10/month.

Koho Prepaid Credit Card