Published in: Personal Loans | Oct. 7, 2019

Co-Borrower vs. Cosigner: What's the Difference?

Cosigners and co-borrowers both share responsibility for debt but they aren't the same. Here are some of the key differences. 

There are many situations in which you either can't -- or don't want to -- borrow money on your own. In these situations, you may need either a cosigner or a co-borrower. You may also be asked to become a cosigner by someone in your life who wants to borrow.  

Cosigners and co-borrowers both share legal responsibility for debt, and lenders take their credit and income into account when deciding whether to approve a loan and when setting interest rates. However, a cosigner is not the same as a co-borrower and it is important to know the difference.

A young couple signing documents at a desk.

Image source: Getty Images

Cosigners are people who guarantee debt for someone who cannot qualify on his or her own. The understanding is that the primary borrower is the person legally responsible for repaying what is owed. Co-borrowers, on the other hand, are people who want to take on a shared debt with another person. The understanding is that co-borrowers will work together to repay a loan taken out for a joint purpose. 

Before you agree to be either a cosigner or a co-borrower, you should learn a little bit more about the role you're taking on. The guide below will help you to better understand. 

What is a cosigner?

Cosigners are people who help someone to qualify for a debt when that person could not otherwise get a loan. 

The cosigner's credit and income are considered by the lender. If the cosigner is better qualified than the primary borrower, the loan may be approved when it would otherwise have been denied, or the primary borrower might get a lower interest rate.

Typically, a cosigner has full legal responsibility for loan repayment if the primary borrower doesn't pay -- even though the goal is for the primary borrower to be the person who repays the loan. If the primary borrower doesn't pay, the cosigner could face ruined credit or collections activities. 

In most cases, a cosigner would remain legally responsible for repaying debt even if the primary borrower passes away. However, there are a limited number of cases -- usually when someone cosigns for student loan debt -- in which the debt might be forgiven upon death or permanent disability of the primary borrower. This is one benefit of cosigning because a co-borrower would be held responsible even if their co-borrower dies or becomes disabled. 

Cosigners can also sometimes be released from legal responsibility for the loan after the primary borrower has made a certain number of on-time payments. Again, this is most common with student loans, rather than in other situations such as cosigning for a personal loan or a car. In most of these other situations, the only way to remove a cosigner's legal responsibilities would be for the primary borrower to refinance the loan once his or her credit has improved.

One big downside of cosigning is that the cosigner doesn't usually directly benefit from the loan. If someone cosigns for an auto loan, for example, the cosigner is unlikely to be named on the title of the vehicle, and so wouldn't have an ownership interest in the car -- even though the cosigner would be legally responsible for payments on the car loan if the primary borrower stopped making them. 

What is a co-borrower?

A co-borrower is someone who borrows with someone else. The co-borrowers usually both want and benefit from the loan, unlike in cosigning situations when the primary borrower wants the loan and the cosigner just helps them to get it. 

Co-borrowers share responsibility for repayment in the eyes of the lender, just as cosigners do. But unlike in a cosigning situation in which the cosigner usually only ends up paying if the primary borrower can't or won't, the co-borrower typically intends to share responsibility for making payments. 

If co-borrowers take out a joint loan to buy an asset, they also usually both have a legal right to the asset, in addition to a legal responsibility for paying for it. If two people are co-borrowers on a home mortgage, for example, they would both have their names on the title to the house. 

When is a cosigner the best option?

It is possible to cosign on most types of loans, including auto loans, personal loans, and student loans. A limited number of credit card issuers also allow cosigners, but usually only in cases in which the primary borrower is a student or has very limited income. 

Some types of loans actually only allow cosigners, not co-borrowers. For example, co-borrowers aren't allowed on student loans, but cosigners are incredibly common. So if a young person doesn't qualify for the student loan on his or her own, a cosigner would be the only choice.

Cosigning is also the right approach when all parties want to be clear that the primary borrower is the one who should be paying back the loan. The primary borrower is the one who will receive the bills in a cosigning situation, even though the creditor can come after the cosigner in the event that the primary borrower defaults.  

If a cosigner hopes to be absolved of responsibility for the loan in the event of death or disability; after cosigner release becomes available; or after the primary borrower refinances, then cosigning also makes sense. 

And if the primary borrower wants to retain sole ownership of the asset that he or she is borrowing for, then cosigning is usually best. 

When is co-borrowing the best option? 

Co-borrowing is the best approach when the borrowers want to share both the responsibilities of the loan, and any assets that are acquired as a result of the borrowing. In particular, co-borrowing is usually best for joint mortgages on a shared home, joint business loans for a shared business venture, or joint auto loans for a shared car.

Credit cards also more commonly allow co-borrowers than cosigners. So if you and your spouse, partner, or friend want to share a credit card that you both charge on and that you pay for together, co-borrowing is generally the best way to achieve this. 

Make sure to understand the difference between co-borrowing and cosigning

Whether you want to borrow money with someone else or you are being asked to cosign a loan, it is important that you understand the differences between cosigning and co-borrowing. Your rights and responsibilities are very different depending on which of these options you choose, so make sure you pick the right one for you.

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