The Differences Between a Cosigner and a Co-borrower

We all need backup from time to time. When it comes to a loan, this can come in a few different forms.

While some people are in a financial situation where they’re the only borrower on a loan application, there are other instances where a cosigner or co-borrower is preferred or even required. 

Is a co-borrower the same as a cosigner? What is the difference between a cosigner and a co-borrower? A cosigner can help you qualify for a loan and is liable in the event you fail to make payments; a co-borrower participates equally in the repayment process and co-owns the asset itself.

Depending on your unique circumstances, you could opt for either scenario. Learning more about the difference between cosigner and co-borrower is a great way to help you make the right choice when applying for a loan. 

Is a co-borrower the same as a cosigner?

Besides the general definition mentioned above, there are a few nuances you might want to know. 

The co-borrower’s role

A co-borrower is a lot like it sounds: a person who applies for a line of credit or a loan in conjunction with another borrower.

One common example is a married couple who takes out a mortgage or car loan together. Both parties — the primary borrower and the co-borrower — are equally responsible for the monthly payments and have equal access to the assets affiliated with the loan. In some cases, a lender will refer to the co-borrowers as co-applicants.

When co-borrowers apply for a loan, the lender will look into both of their credit scores, incomes, debts and assets, and use the information to determine whether they qualify for the loan. Having a co-borrower can often work in favor of both applicants, as dual incomes might mean better loan terms and higher limits for what they can borrow. 

On the other hand, if one co-borrower has a high debt-to-income (DTI) ratio or a low credit score, it could negatively impact the interest rate or loan terms. In this case, it could be worthwhile for the borrower with better credit history to apply alone. 

The cosigner’s role

A cosigner is someone who agrees to take financial responsibility for a loan in the event that the primary borrower fails to make payments — or defaults on the loan altogether. 

Borrowers with no credit history, a short credit history or a poor credit score will often need a cosigner to qualify for a loan or receive better terms and interest rates.

For a person to qualify as a cosigner, they must have a stable form of employment, a solid credit score, and sufficient income to cover the cost of the loan on behalf of the borrower. Anyone can act as a cosigner — it doesn’t necessarily need to be a parent or relative, it can also be a spouse, friend or even a colleague. 

There are a few common occasions when a borrower would use a cosigner. If a student has no credit history or steady income, a cosigner is needed to help them qualify for a private student loan. Similarly, if someone is striking out on their own and hoping to sign their first lease, their landlord might require a cosigner. 

How the cosigner process works

When applying for a loan or line of credit with a cosigner, the process starts the same way as applying solo. The primary borrower will provide personal information like proof of income, prior tax returns, social security number and an employment verification letter. The lender will then ask for the cosigner’s personal information, determine their credit score and DTI ratio, and possibly ask for pay stubs, proof of income or prior tax returns. 

After the loan is approved, it not only appears on the primary borrower’s credit report, but also on the cosigner’s. Cosigners could be taking on a major risk when they put their credit history on the line for a primary borrower. 

If payments are missed or the loan is defaulted, the cosigner’s credit score is damaged as well. This could affect their ability to qualify for future loans or lines of credit. 

Co-borrower vs. cosigner: the benefits & drawbacks

There are certain pros and cons to using a co-borrower or a cosigner. Each role comes with its own set of benefits and drawbacks. 

Benefits of using a co-borrower

• The borrower might qualify for lower interest rates and better loan terms.

• The borrower might be eligible for a higher loan limit. 

• The co-borrowers co-own the asset. This can be viewed as a pro or a con. 

Drawbacks of using a co-borrower

• If the primary borrower misses any payments or defaults on the loan, they can cause serious damage to the co-borrower’s credit score. 

• With equal payment responsibility for both parties, co-borrowers are required to keep paying off the loan even if they part ways, like in the case of a divorce. 

Benefits of using a cosigner

• A borrower who wouldn’t otherwise qualify for a certain loan or interest rate might become eligible with a cosigner. 

• Once approved, the primary borrower remains the sole owner of any assets tied to the loan; they don’t have to split them with the cosigner. 

Drawbacks of using a cosigner

• The primary borrower is fully responsible for the payments. 

• The primary borrower could jeopardize the cosigner’s credit history, and their own credit score, if they fall behind on payments or default on the loan. 

What is the difference between cosigner and guarantor?

A guarantor is a person who promises to swoop in and pay a borrower’s debt if they default on a line of credit or loan. They do so by pledging their assets as collateral. 

In some cases, a borrower can act as their own guarantor, using their own assets as collateral against the loan. 

Guarantors tend to step in when a borrower has bad credit but sufficient income, whereas a cosigner is usually used when the borrower’s qualifying income fails to meet the requirements set forth by the lender. Guarantors also have no ownership of the loan assets. 

Similar to a cosigner, a guarantor’s credit history can be damaged if the borrower fails to make payments or defaults on a loan. However, a cosigner shoulders more responsibility from the onset of the loan application, while a guarantor is only on the hook if the primary borrower fails to meet their end of the loan agreement. 

It all comes down to financial responsibility

Is a co-borrower the same as a cosigner? Like anything else in the financial world, when it comes to taking out a loan, there are levels of responsibility and liability. To put it simply, a cosigner takes on more financial responsibility than a guarantor but less responsibility than a co-borrower. 

Tally can help you become more financially responsible by empowering you to break free from debt. With the Tally app and line of credit† you can work toward paying off your high-interest credit card debt so you can strengthen your own position when it comes to applying for loans, leases or lines of credit. 

†To get the benefits of a Tally line of credit, you must qualify for and accept a Tally line of credit. The APR (which is the same as your interest rate) will be between 7.90% and 29.99% per year and will be based on your credit history. The APR will vary with the market based on the Prime Rate. Annual fees range from $0 - $300.