A co-signer agreement is a written side contract between the borrower and the co-signer that sets out who pays, when, and what happens if the loan goes wrong. In Canada, the lender's loan contract still controls the debt, but a clear agreement can prevent misunderstandings.
A co-signer agreement is a written side contract between the borrower and the co-signer that sets out who pays, when, and what happens if the loan goes wrong. In Canada, the lender's loan contract still controls the debt, but a clear agreement can prevent misunderstandings and give the co-signer a paper trail. Use this checklist as a starting point, and remember that it is general information, not legal advice.
| Clause | What to put in writing | Why it matters |
|---|---|---|
| Parties and date | Full legal names, addresses, contact details, date of agreement, and the borrower/co-signer relationship. | Identifies who is bound and makes notices easier. |
| Loan identification | Lender name, loan or account number, amount advanced, interest rate, term, payment amount, payment frequency, first payment date, and maturity date. | Ties the side agreement to the exact debt. |
| Purpose and use of funds | What the money is for and any restrictions, such as buying a vehicle or covering tuition. | Reduces disputes about how the money was used. |
| Payment promises | Borrower promises to pay on time, keep the lender informed, and tell the co-signer within a set number of days of any missed or late payment. | Creates a clear early-warning system. |
| Co-signer liability | State that the co-signer is liable to the lender if the borrower defaults, and describe what the co-signer is signing. | Avoids surprise about the extent of liability. |
| Indemnity and reimbursement | Borrower must repay the co-signer for any amount the co-signer pays, plus interest and collection costs, within a stated time. | Gives the co-signer a way to recover money. |
| Information rights | Borrower must provide statements, notices of default, and updates; co-signer may contact the lender. | Prevents the co-signer from being blindsided. |
| Insurance and security | Who insures any collateral, who pays premiums, proof of coverage, and what happens if insurance is cancelled. | Protects the asset that secures the loan. |
| Default and remedies | Define default, describe the lender's remedies, and set out the co-signer's right to cure the default by paying. | Clarifies what happens before collections begin. |
| Release and term | Conditions for releasing the co-signer, such as on-time payments or refinancing, and when the agreement ends. | Addresses a common co-signer question. |
| Notices and amendments | How notices are given (email, registered mail, courier) and that changes must be in writing and signed. | Makes the agreement easier to enforce and update. |
| Dispute resolution and governing law | Which province or territory's law applies, which courts have jurisdiction, and whether mediation is required. | Sets the rules for resolving disagreements. |
Before you draft anything, follow these steps:
- Collect the lender's documents. Get the loan agreement, disclosure statement, payment schedule, and any security documents. The the Financial Consumer Agency of Canada explains the basics of loans and borrowing costs.
- Confirm the type of co-signing. Are you a co-signer, a guarantor, or a joint borrower? Each role has different rights and liabilities. See our guide on what a co-signer is for the differences.
- Write in plain language. Avoid legal jargon where possible, but use exact figures and dates from the loan documents.
- Set a communication routine. Decide how often the borrower will send statements and what triggers an immediate update.
- Review with a lawyer or paralegal. A side agreement can create enforceable obligations. A professional review can catch gaps that a template misses.
- Sign and date copies. Each party should keep a signed copy, and consider having the signatures witnessed.
The lender's contract always comes first
Your side agreement cannot change what you owe the lender. When you co-sign, you normally become directly liable for the debt. The the Financial Consumer Agency of Canada explains that a co-signer is responsible for the loan if the borrower does not pay. The lender can usually demand payment from either party, and it does not have to chase the borrower first. The FCAC also publishes guidance on rights and responsibilities for credit loans. Put the lender's terms at the top of your checklist and make sure your agreement is consistent with them.
If the loan is joint, each borrower may be jointly and severally liable. That means the lender can collect the full amount from one person. A side agreement is a contract between you and the borrower; it does not bind the lender unless the lender signs it. For that reason, never assume the lender will notify the co-signer before taking collection action.
Core terms: parties, loan details and payment promises
Start with full legal names, current addresses, email addresses, and phone numbers. Identify the lender, loan number, amount advanced, interest rate, term, payment amount and frequency, first payment date, and maturity date. Rates vary by lender and province, so record the actual rate from the loan documents rather than an estimate. If the loan is variable, describe how the rate can change. The federal criminal interest rate is 35% per annum under Criminal Code s.347, and provincial consumer protection rules may also apply.
The borrower should promise to make all payments on time, to keep the lender informed of address changes, and to tell the co-signer within a set number of days if a payment is missed or late. The co-signer should promise to pay only if the borrower defaults, and then only in accordance with the lender's demand. The New Brunswick Financial and Consumer Services Commission's guide on before co-signing a loan notes that co-signing is a serious commitment, not a favour that ends when the borrower gets back on their feet.
Add a clear reimbursement clause: if the co-signer pays any amount, the borrower must repay that amount within a stated period, plus any interest or collection costs the co-signer incurs. This is sometimes called an indemnity. Without it, the co-signer may have to sue the borrower and prove the debt again. If the borrower has bad credit, the lender may charge a higher rate; see our page on bad credit loans for context, but remember that the loan contract controls.
Co-signer rights: information, reimbursement and security
One of the biggest practical problems is silence. The borrower stops paying, and the co-signer finds out only when a collection call arrives. Put a communication clause in the agreement. The borrower should give the co-signer copies of monthly statements, notices of missed payments, notices of default, and any changes to the loan terms. The co-signer should have the right to contact the lender directly, although the lender may require the borrower's consent or may have its own privacy rules.
Consider a clause that lets the co-signer make payments directly to the lender if the borrower misses a payment. The agreement can also say that the co-signer is entitled to reimbursement and to be subrogated to the lender's rights — meaning the co-signer can step into the lender's shoes and collect from the borrower. That is a legal concept, so it is worth having a lawyer review the wording.
If there is collateral, such as a vehicle or equipment, describe who must insure it, who pays the premiums, and what happens if insurance is cancelled. The co-signer may want to be named on the insurance policy or at least receive proof of coverage. You can also use a loan payment calculator to check that the payment schedule in the agreement matches the lender's numbers.
Default, collections and credit reporting
Define default in the agreement. It should match the lender's definition, but you can add events such as missing two payments, failing to provide statements, or selling the collateral without consent. Once default occurs, the lender may demand full repayment, start collection calls, or sue. The co-signer's credit report can be affected. The Financial Consumer Agency of Canada — credit reports and credit scores explains how lenders report missed payments and defaults. A side agreement cannot erase a missed payment from a credit report, but it can give the co-signer a right to be notified early and a right to cure the default by paying what is owed.
Include a clause about collection costs. If the lender adds legal fees or collection charges, who pays them? The borrower should be responsible as between the borrower and co-signer, but the lender can still collect from the co-signer under the loan contract. The co-signer's reimbursement claim should cover those amounts.
Release, refinancing, death and insolvency
Many co-signers assume they can be removed once the borrower makes a few payments. That is usually not automatic. The lender must agree to release the co-signer, and it may refuse unless the borrower qualifies on their own or provides a replacement co-signer. Clicklaw Wikibooks' page on co-signing or guaranteeing a loan explains that the co-signer remains liable until the loan is paid or the lender releases them.
Put conditions in the agreement for requesting release, such as 12 months of on-time payments, a certain credit score, or a refinance. If the borrower refinances, sells the asset, or receives an inheritance, the agreement should say whether the loan must be paid out and the co-signer released. Address what happens if the borrower dies, becomes disabled, divorces, or files for bankruptcy or a consumer proposal. These events can change who pays and whether the co-signer's reimbursement claim survives. The agreement can require the borrower to maintain life or disability insurance and to name the co-signer as a beneficiary for the amount of the debt.
Dispute resolution, governing law and amendments
Choose the province or territory whose law governs the agreement. If the borrower and co-signer live in different provinces, say which courts have jurisdiction and how disputes will be resolved. You can require mediation before litigation, but make sure the clause is practical. A dispute resolution clause that forces an expensive process can be worse than no clause.
Set out how notices must be given: email, registered mail, or courier, with deemed receipt rules. State that any amendment must be in writing and signed by both parties. Include a severability clause so that if one part is unenforceable, the rest survives. Finally, confirm that the agreement does not replace the lender's loan contract and that if there is a conflict, the lender's contract prevails.
Common mistakes
- Relying on a verbal understanding. A handshake is hard to prove when payments stop.
- Assuming the lender must notify the co-signer before collections. The loan contract may not require it.
- Forgetting to attach the loan documents and payment schedule to the agreement.
- Not setting a deadline for reimbursement after the co-signer pays.
- Leaving out what happens if the borrower wants to refinance or sell the asset.
- Using vague language like reasonable notice without saying how notice is given.
- Ignoring the effect of bankruptcy, a consumer proposal, or a credit counselling arrangement.
- Failing to review the agreement with a lawyer or paralegal before signing.