What to do if the Co-signer of a Loan Dies

If the co-signer of a loan dies you may be saddled with the remaining loan repayments, but this all depends on your status as primary or secondary borrower and you can put in place protective measures in case such a situation arises.

When the co-signer of a loan dies there are a few possible scenarios that can occur depending on whether they were the primary or secondary borrower and what the provisions of the loan were with the lender. Because of this, it is very important that you realise the full implications of co-signing a loan as a primary or secondary borrower before you get involved.

What happens when the co-signer of a loan dies and you are the primary borrower

  • In this case you will have to contact your bank if unsure what the stipulations of the agreement were. In most cases the bank will still require payment of the loan at the same rate as before. The reason a co-signer was needed was because the primary borrower did not have provide information to show that they could fully repay the loan alone and needed somebody as a safety net. The bank may ask that you find another co-signer to add to the agreement or leave you alone to settle to repayments. If you cannot, your credit rating will be severely affected and plunge.

What happens when the co-signer of a loan dies and you are the secondary borrower

  • This scenario is much less straight forward and you should put a lot of thought into this action before signing. You are acting as a back up borrower for the primary signature. This means that if they fail to repay the loan then the responsibility rests with you. About 75% of co-signers have claimed that the bank have followed them up on loan repayments. In some situations there are certain stipulations and clauses entered into the agreement that exempt the secondary borrower from repaying the debt. These are usually included in student loans and some other types. You will need to check with the bank if this is included in the agreement.
  • If you cannot repay the loan then these late payments or non-payments will be punished with the lowering of your credit score. The bank may also take you to court and bring a suit against you to get the money.
  • If it is the case that the bank automatically cancels the loan when the primary borrower passes away then you will probably need to present a death certificate to the bank to prove the death. 
  • It can also happen that the debt is passed onto the deceased estate and in this case you cannot make the payment, even if you have the desire to do so. You can create a "joint tenancy" with the co-signer that will offer you some protection. This is a partnership in which you both receive equal equity in an undivided property should one die. The ownership will be assumed by the survivor. 
  • It can happen that the co-signer of a loan dies so make sure you are prepared for any eventuality by checking all the conditions of a contract before signing anything.