By LaToya IrbyCo-Borrower vs. Cosigner: What’s the Difference?
Quick Answer
The co-borrower and cosigner are both responsible for repaying a loan, but a co-borrower has joint ownership of the funds or asset, while a cosigner doesn’t.
Having a co-borrower or cosigner can increase your chances of approval for an auto loan, mortgage, student loan or personal loan. However, each option serves a different purpose and carries different risks.
A co-borrower shares both ownership of the asset and equal loan responsibility, while a cosigner only helps you qualify—with the understanding that they will make loan payments if you don't. Understanding the pros and cons of each can help you determine the best choice for your situation.
| Co-Borrower | Cosigner |
|---|---|
| Has equal access to funds, responsibility for the loan payments and legal rights to the asset | Only responsible for payments if the primary borrower fails to pay; no access to funds or ownership rights to the asset |
| Payment history affects both co-borrowers' credit | Payments affect the primary borrower's and the cosigner's credit |
| Best for spouses, family members and business partners getting mortgages, joint auto loans, business loans or shared lines of credit | Best for helping a friend, child or family member qualify for student loans, rental agreements or auto loans |
What Is a Co-Borrower?
A co-borrower applies for a loan or line of credit with another person. The lender considers both individuals' income and credit history when approving the loan and setting the terms.
Both co-borrowers are equally responsible for making payments and accepting the risks associated with the loan. They both also have joint access to the borrowed funds and any assets secured by the loan, such as a car.
Co-borrowing is common when spouses purchase a home together. Both parties want equal ownership and accept responsibility for the mortgage. They're listed as co-borrowers on the loan and joint owners on the title.
Pros
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Better approval odds: Combining incomes and credit scores can increase the chances of approval and help you qualify for better loan terms or interest rates.
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Equal ownership: Both borrowers often have joint legal ownership of any asset tied to the loan, like a house or car.
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Shared financial responsibility: Since both borrowers are responsible for payments, the financial burden doesn't fall solely on one person.
Cons
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Shared liability: Both borrowers are equally responsible for payments and one individual's financial responsibility affects the other. Late or missed payments hurt both individuals' credit.
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Difficulty removing a co-borrower: You usually have to refinance the loan to remove a co-borrower. This may be difficult if the person assuming the loan can't qualify alone.
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Risk to the relationship: Disagreements over the loan can strain the relationship, especially if one person doesn't uphold their part of the agreement.
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Both parties must agree to sell assets: Since both co-borrowers have legal rights to the property, both must agree before selling jointly owned assets.
Who Should Consider a Co-Borrower?
- Borrowers who need a large loan and whose income isn't high enough to qualify alone
- Spouses who want to co-own an asset, such as a house or car
- Business partners who want to combine their financial resources to qualify for funding to help the business
What Is a Cosigner?
A cosigner agrees to take responsibility for repaying a loan if the primary borrower is unable or unwilling to make payments. This can be beneficial if the primary borrower has a limited credit history, low credit score, insufficient income or high debt-to-income ratio (DTI). A cosigner provides lenders additional assurance that the loan will be repaid.
For example, student loan borrowers often need a cosigner to qualify for private student loans or to get better interest rates. Because young adults often don't have strong credit profiles, having a parent or other relative cosign can help strengthen their application.
Pros
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Helps the borrower qualify: Cosigning helps the primary borrower qualify for a loan they wouldn't be able to get on their own.
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Can improve the borrower's credit: Timely payments help build the borrower's credit history, making it easier for them to qualify for future loans on their own.
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Help the borrower access better terms: The lender may offer a lower interest rate after taking the cosigner's credit and income into consideration.
Cons
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Risk of credit damage: Late or missed payments can hurt the cosigner's credit score, even if they weren't aware of them. Worse, borrower default puts the cosigner at risk of collection accounts and lawsuits.
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Potential challenge getting new credit: Since the loan appears on the cosigner's credit report, the increased debt can make it harder for the cosigner to get approved for new loans or credit cards if they need them.
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No ownership or benefits: As a cosigner, you won't have rights to the property or asset tied to the loan.
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Risk of property loss: Cosigners could lose any property you used as collateral if the primary borrower defaults.
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No protection with primary borrower bankruptcy: Bankruptcy can leave you on the hook for the full debt while relieving the primary borrower of their responsibility.
Who Should Consider a Cosigner?
- Borrowers with a low credit score or limited credit history
- Borrowers with insufficient income
- Borrowers with too much other debt
How to Decide Between Having a Co-Borrower or Cosigner
Not every situation is right for co-borrowing or cosigning. It's important to consider the circumstances of the loan when choosing which option fits your situation.
Consider a co-borrower when:
- You're applying for a large loan
- You're making a joint purchase with a spouse or partner
- You're seeking business financing with your business partner
Consider a cosigner when:
- You have limited credit or a low credit score
- You income isn't high enough to qualify on your own
- You want to qualify for a lower interest rate
- You don't need to share ownership of the asset
Frequently Asked Questions
The Bottom Line
Co-borrowing is a good option if you want to own an asset and share payment responsibility with someone. On the other hand, cosigning is solely about helping someone qualify for a loan—you won't have ownership rights. In both cases, it's essential to consider your finances and long-term goals before committing. Be sure you're prepared to take on payment responsibility if necessary.
Checking your credit before you apply is a smart move no matter your role in the loan. After the loan is finalized, regularly monitor your credit to track the impact to your credit and be sure there are no late or missed payments.
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About the author
LaToya Irby
LaToya Irby is a personal finance writer who works with consumer media outlets to help people navigate their money and credit. She’s been published and quoted extensively in USA Today, U.S. News and World Report, myFICO, Investopedia, The Balance and more.
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