What happens if my cosigner dies?

flowers placed on a headstone
Not very much happens when your cosigner dies, provided you don’t default.

Eric Counts, Founder of CreditNerds, told that as long as the personal loan borrower doesn’t default, then nothing should change. The personal loan’s lifetime and interest rate would be completely unaffected.

He explained that even in the event of an untimely death, lenders protect themselves and have enough foresight to take into account the passing of a cosigner.

“Most large banks will have a clause covering the death of a borrower or co-signer,” said Counts. “If a co-signer dies, the estate of the deceased can become the new co-signer. If the loan was to default, the bank could take action against both the living borrower and the estate assets of the deceased.”

Under the terms of most personal loan contracts, the death of a cosigner doesn’t relieve the cosigner’s responsibility. The deceased’s estate would be liable for any post-death obligation, such as if the personal loan borrower defaulted.

But it’s usually up to lenders to find out about a cosigner’s death and to file a claim.

“Upon death, the executor of the will must place a public notice, usually in the newspaper, announcing the death and allowing creditors to make a claim against the estate,” said Counts. “If the creditors do not make a claim against the estate, the cosigner’s obligation would usually end there. If a creditor makes a claim and the claim is shown to be valid, the assets of the deceased would be used to pay the financial obligations before being distributed as inheritance.”

Borrowers do not have to find a replacement cosigner if their personal loan cosigner dies. While it may make logical sense that a lender would want one, in actuality the personal loan has already been executed.

However, there is one possible instance in which a personal loan borrower would need to get a new cosigner.

“If the borrower were to attempt to refinance, then they would either need sufficient credit and income to get the loan on their own merit or provide a new co-signer,” said Counts. “The bank should not ask for a new co-signer unless the borrower attempts to refinance or change the terms of the original loan.”