What Happens When a Co-signer Dies?

Aug 5th, 2022

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If you are finding it difficult to obtain a loan due to your credit history, one good way to get out of it is by getting a co-signer for the loan. Basically, the co-signer acts as a human guarantor and their credit history goes a long way in helping you get the loan. Now, have you ever wondered what happens when a co-signer dies? What if the person dies while you are repaying the loan? Here, you will learn what you should know about how to handle a co-signer’s demise. 

What happens when a co-signer dies?
What happens when a co-signer dies?

What Happens If The Co-signer On My Loan Dies?

When someone you love dies, it can be a very tough situation both emotionally and financially. However, If you have financial connections with that person, you have to sort them out as soon as possible to avoid future problems. One of the major concerns is when this person cosigned on a loan you took. What then happens to the loan?

There are various types of loans with varying agreements such as personal loans, mortgages, car loans, or student loans. Hence, depending on your loan agreement, different situations could occur if your cosigner passes away. However, what mostly happens when a cosigner passes away is that the entire liability will fall on the primary borrower.

If you are a primary borrower, you will do just fine as long as you continue to make timely payments. In fact, you can even continue to pay the loan payments without any worry. However, if you are already defaulting by the time your cosigner dies, the lender can recover the loan you owe from the estate of your late cosigner. 

This is usually the case for various types of loans like personal loans, mortgages, car loans, and student loans.


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Do I Need To Pay The Full-Loan Amount Immediately Once My Cosigner Dies?

If you are troubled about whether you would have to pay the loan amount fully immediately after your cosigner dies, you have to check the terms of your loan. Some sections of the agreement specify what will happen with the loan if your cosigner dies. 

Generally, many loan agreements will permit you to continue with the agreement as long as you make timely payments. However, some other loan agreements may require you to pay the loan in full as soon as possible.

One section that you should look out for in your agreement is the “Automatic Default Clause”. Basically, if you see this clause is on your loan agreement, know that your loan balance becomes due immediately after your cosigner dies. This means that you have to complete the payment as soon as possible. 

Do I Need To Find Another Cosigner If My Cosigner Dies?

Another common question that borrowers ask is if it is necessary to get a new cosigner if the loan cosigner dies. The answer to this question is simply No. If your cosigner dies, you do not need to find another cosigner because the estate of the deceased cosigner becomes the new cosigner. If you default on the loan, the lender could go after the estate of the deceased cosigner.

However, there is a situation where you may need to find a cosigner. When you want to refinance your loan, you will need another cosigner to stand in for you. Basically, if you have a good credit score, you will be able to refinance the loan on your own. 

However, if your credit score is bad, the lender may not accept to refinance your loan. Hence, some lenders will need you to look for another cosigner before they approve your loan.

What should I Do If My Cosigner Dies?

When your loan cosigner dies, review your loan agreement immediately to check the agreements defined in the contract. Also, do not hesitate to reach out to the lender to inform him of the news and discuss your available options. This helps you to handle the situation better. Avoiding the loan issue will just delay the inevitable and may even put you at a disadvantage in the future.

Bottom Line

The direct answer to the question “what happens when a co-signer dies?” is usually stated in your loan agreement. Basically, two things can happen. It’s either the lenders allow you to continue repaying the loan in instalments or they demand that you pay it off at once. It all depends on your initial agreement. Also, remember that you need to inform your lender if your cosigner dies so you can discuss the available options. 

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