It’s not uncommon to need a little help when applying for a loan – whether it’s from a family member, friend, or financial institution. But what exactly is the difference between a co-signer and co-borrower? And what are the risks and benefits of each option? Keep reading to find out.
The difference between a co-signer and co-borrower
A co-signer is someone who agrees to be responsible for repaying a loan if the borrower defaults. The co-signer does not have any ownership interest in the property that is being purchased with the loan.
The responsibilities of a co-signer
- To make payments on the loan if the borrower defaults
- To pay off the entire loan balance if the borrower dies or declares bankruptcy
- To cosign any promissory note or mortgage associated with the loan
The responsibilities of a co-borrower
A co-borrower is someone who applies for a loan with another person and is jointly liable for repaying the debt. A co-borrower has an ownership interest in the property that is being purchased with the loan.
The responsibilities of a co-borrower
To make payments on the loan if the borrower defaults
To pay off the entire loan balance if the borrower dies or declares bankruptcy
To cosign any promissory note or mortgage associated with the loan
To sign all loan documents
The risks of being a co-signer
When you co-sign for a family member, you are putting your own credit at risk. If they default on the loan, it will reflect poorly on your credit report. You may also be responsible for repaying the entire loan if the primary borrower can’t or won’t make their payments. This could put a strain on your finances and damage your credit score.
The risks of co-signing for a friend
When you co-sign for a friend, you are also putting your own credit at risk. If they default on the loan, it will reflect poorly on your credit report. You may also be responsible for repaying the entire loan if the primary borrower can’t or won’t make their payments. This could put a strain on your finances and damage your credit score.
The benefits of being a co-borrower
There are several benefits to co-borrowing for a family member. First, it can help the borrower qualify for a loan that they would not otherwise be able to obtain on their own. This can be especially helpful if the borrower has a limited or poor credit history. Second, it can help the borrower get a lower interest rate on their loan, as the co-borrower’s good credit will be taken into account when calculating the rate. Third, it can provide some financial security for the borrower in case of an emergency or unexpected expense. Finally, it can help build or improve the relationship between the borrower and co-borrower.
Conclusion
The risks of co-signing for a family member or friend can be great, but so can the benefits. It’s important to know the difference between a co-signer and co-borrower before making any decisions. As a general rule, a co-signer is someone who is responsible for repaying the debt if the primary borrower cannot. A co-borrower, on the other hand, is equally responsible for repaying the debt.
If you’re considering becoming a co-signer, make sure you understand all of the risks involved. You could be on the hook for thousands of dollars if the borrower defaults on their loan. And, if you have bad credit, cosigning could damage your credit score.
On the other hand, being a co-borrower can have some great benefits. For example, you can build up your credit history by making timely payments on a shared loan. And, if you’re married or in a long-term relationship, co-borrowing can help you both qualify for better interest rates and terms.
No matter what side you’re on, it’s important to do your research and weigh all of your options before cosigning or taking out a joint loan.