Courtesy of Bankrate.com
While there are some similarities, a co-borrower — or joint applicant — shares ownership of the funds or assets secured with the loan. The co-signer, on the other hand, does not.
Both could increase your chances of approval and could help you secure better terms, and knowing the difference between the two is imperative when applying for a loan to avoid future misunderstandings.
Co-signer vs. a co-borrower comparison
The most important difference between a co-borrower and a co-signer is the degree of investment in the loan. A co-borrower has more ownership than a co-signer because a co-borrower has access to the loan funds.
| Co-signer | Co-borrower |
|---|---|
| Has no legal claim over the funds or assets obtained through the loan. | Shares ownership of the funds or assets obtained through the loan. |
| Liable for repayment from the beginning, but typically only expected to pay if the primary borrower defaults. | Shares repayment responsibility from the start. |
| Its main purpose is to help the primary borrower get the loan. | Benefits equally from the loan. |
Co-signers
A co-signer is a guarantor for the primary borrower and agrees to take equal responsibility for repaying a loan, though it is typically not expected to make payments unless the primary borrower defaults on the loan. The co-signer normally has better credit or a higher income than the primary borrower, who might otherwise not get a loan application approved without the help of a co-signer.
Co-signers typically have a close relationship with the primary borrower. A co-signer is typically a parent, immediate family member, a partner or spouse.
Pros-
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- Can increase the primary borrower's approval odds.
- It could help the borrower secure a lower interest rate.
- The primary borrower is the sole owner of the funds.
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Cons-
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- Must have good credit.
- Both credit scores could suffer if the borrower pays late.
- Co-signer is legally responsible for repayment.
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Co-signing is typically preferable if only one of the borrowers will benefit from the loan. For example, if a young person without established credit wants a personal loan, the bank might decide that the loan is too risky without a co-signer. A parent with good credit might agree to co-sign with the understanding that their child will pay it back.
Co-borrowers
A co-borrower, sometimes called a co-applicant or joint applicant, is a person who shares responsibility for repaying a loan with another person. In addition to both parties being responsible for making payments toward the loan, assets that guarantee the loan — like a home or car — may be owned by both co-borrowers.
Applicants with co-borrowers are more likely to receive larger loan amounts since they are viewed as less risky for lenders. Each co-borrower has equal access to the loan funds. And if the loan was used to secure property — like a vehicle — often both co-borrowers will be listed as owners.
