What’s the Difference Between a Cosigner and Co-Borrower?

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Our team at Student Loan Hero works hard to find and recommend products and services that we believe are of high quality and will make a positive impact in your life. We sometimes earn a sales commission or advertising fee when recommending various products and services to you. Similar to when you are being sold any product or service, be sure to read the fine print understand what you are buying, and consult a licensed professional if you have any concerns. Student Loan Hero is not a lender or investment advisor. We are not involved in the loan approval or investment process, nor do we make credit or investment related decisions. The rates and terms listed on our website are estimates and are subject to change at any time. Please do your homework and let us know if you have any questions or concerns.

cosigner vs. co-borrower

Borrowing money is complicated, especially if you aren’t getting a loan on your own.

Sometimes, multiple borrowers want to get a loan together and share responsibility for repayment. For example, if spouses get a mortgage together, they can be co-borrowers on the loan.

In other cases, one person wants a loan but needs help qualifying from someone with better credit or a higher income. The person who helps out is known as a cosigner.

There are big differences between a cosigner versus a co-borrower, and each option has its own pros and cons. Below, find out which choice is best for your situation.

Cosigner vs. co-borrower: What’s the difference?

Cosigners and co-borrowers both assume legal responsibility for repaying a loan. But they do so for different reasons and with different expectations.

A co-borrower applies for a loan with the primary applicant, and both parties are responsible for paying back the loan.

For example, if two people start a business together, they might take out a personal loan as co-borrowers and work on paying it back together. Both directly benefit from borrowing and enter the transaction knowing they’ll be making payments. If there’s property involved — if the loan is used to buy a home or car, for instance — the co-borrowers have a shared interest in the property.

A cosigner, on the other hand, is “a guarantor, without whom the loan will not be approved,” said Ogechi Igbokwe, a financial educator and founder of OneSavvyDollar. “A cosigner guarantees that the loan will be repaid.”

The cosigner doesn’t intend to make any payments — that’s the primary borrower’s job. But they do promise to assume responsibility for repayment if the primary borrower doesn’t pay as required.

If a young person without established credit wants a personal loan to start a business, for example, the bank might decide it’s too risky unless someone with better credit agrees to share legal responsibility for repayment. A parent with good credit might agree to cosign even though they don’t need the loan. The understanding is that their child will pay it back.

What situations are best for a cosigner vs. a co-borrower?

There are many situations where it makes sense to have a cosigner or co-borrower. Adding a cosigner or co-borrower to your application, for example, could help you qualify for a loan or earn a lower interest rate.

In some cases, cosigning is the only option. Students often need cosigners to qualify for private student loans, for instance, since young people often don’t have the credit to qualify on their own.

However, a student who takes out a private loan is typically the primary borrower and has a cosigner who guarantees the loan. Most lenders don’t offer joint applications for co-borrowers to take out a student loan together.

In other cases, borrowers can choose whether to get a cosigner or co-borrower. If a husband and wife buy a car together, they could get a joint loan and be co-borrowers who own and pay off the car together.

Alternatively, a husband could buy a car in his name only but have his spouse cosign the loan. He might choose to do this if his income isn’t high enough to qualify alone.

When you’re given a choice, co-borrowing is often better in situations where both parties want to have rights to a property and contribute to repayment. Cosigning is typically preferable if only one of the borrowers will have rights to the property and is expected to make payments on their own.

What are the pros and cons of cosigning vs. co-borrowing?

If you have a choice between cosigning and co-borrowing, the right approach depends on what your goals are for the loan.

Co-borrowers benefit by jointly owning assets, whereas cosigners don’t typically use the car, house, or education they cosign for.

The fact that co-borrowers directly benefit from the loan is a big pro, especially if jointly applying makes it possible to start a business, buy a shared home, or purchase a car. But co-borrowers work together to repay the debt, whereas cosigners don’t have to pay any money unless the primary borrower fails to fulfill their obligation.

Of course, everything doesn’t always go according to plan. That’s why co-borrowing and cosigning are both risky.

“If you’re considering cosigning on a loan or co-borrowing with someone, be aware that both scenarios will require you to take on the full financial burden if the other party can’t,” explained Misty Lynch, a certified financial planner and financial consultant with John Hancock. “Situations change over time and some people who initially have every intention of paying their loans back on their own can’t do it.”

Agreeing to be a cosigner or co-borrower could also impact your credit. In both scenarios, a missed payment will negatively influence your credit score. The loan will also appear on your credit report, which could increase your debt-to-income ratio. Both of these things could make it harder for you to get a loan in the future.

If you know the risks and want to borrow money with someone to accomplish a goal, co-borrowing might make sense. Alternatively, if you want to help out a loved one by guaranteeing a loan, cosigning might be right for you.

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1 Includes AutoPay discount. Important Disclosures for SoFi.

SoFi Disclosures

  1. Personal LoansFixed rates from 6.325% APR to 15.615% APR (with AutoPay). Variable rates from 6.275% APR to 14.70% APR (with AutoPay). SoFi rate ranges are current as of July 3, 2018 and are subject to change without notice. Not all rates and amounts available in all states. See Personal Loan eligibility details. Not all applicants qualify for the lowest rate. If approved for a loan, to qualify for the lowest rate, you must have a responsible financial history and meet other conditions. Your actual rate will be within the range of rates listed above and will depend on a variety of factors, including evaluation of your credit worthiness, years of professional experience, income and other factors. See APR examples and terms. Interest rates on variable rate loans are capped at 14.95%. Lowest variable rate of 6.275% APR assumes current 1-month LIBOR rate of 2.10% plus 4.175% margin minus 0.25% AutoPay discount. For the SoFi variable rate loan, the 1-month LIBOR index will adjust monthly and the loan payment will be re-amortized and may change monthly. APRs for variable rate loans may increase after origination if the LIBOR index increases. The SoFi 0.25% AutoPay interest rate reduction requires you to agree to make monthly principal and interest payments by an automatic monthly deduction from a savings or checking account. The benefit will discontinue and be lost for periods in which you do not pay by automatic deduction from a savings or checking account.
  2. Terms and Conditions Apply: SOFI RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE. To qualify, a borrower must be a U.S. citizen or permanent resident in an eligible state and meet SoFi’s underwriting requirements. Not all borrowers receive the lowest rate. To qualify for the lowest rate, you must have a responsible financial history and meet other conditions. If approved, your actual rate will be within the range of rates listed above and will depend on a variety of factors, including term of loan, a responsible financial history, years of experience, income and other factors. Rates and Terms are subject to change at anytime without notice and are subject to state restrictions. SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income Based Repayment or Income Contingent Repayment or PAYE. Licensed by the Department of Business Oversight under the California Financing Law License No. 6054612. SoFi loans are originated by SoFi Lending Corp., NMLS # 1121636. (www.nmlsconsumeraccess.org)

2 Important Disclosures for Citizens Bank.

Citizens Bank Disclosures

  • Personal Loan Rate DisclosureFixed interest rates from 6.49% – 19.49% (6.49% – 19.49% APR) based on applicable terms. Lowest rates range from 5.99%-18.99% (5.99%-18.99% APR), are for eligible applicants, require a 3-year repayment term, and include our Loyalty and Automatic Payment Discounts of 0.25 percentage points each, as outlined in the Loyalty Discount and Automatic Payment Discount disclosures. Subject to additional terms and conditions, and rates are subject to change at any time without notice. Such changes will only apply to applications taken after the effective date of change.
  1. Loyalty Discount: The borrower will be eligible for a 0.25 percentage point interest rate reduction on their loan if the borrower has a qualifying account in existence with us at the time the borrower has submitted a completed application authorizing us to review their credit request for the loan. The following are qualifying accounts: any checking account, savings account, money market account, certificate of deposit, automobile loan, home equity loan, home equity line of credit, mortgage, credit card account, student loans or other personal loans owned by Citizens Bank, N.A. Please note, our checking and savings account options are only available in the following states: CT, DE, MA, MI, NH, NJ, NY, OH, PA, RI and VT. This discount will be reflected in the interest rate and Annual Percentage Rate (APR) disclosed in the Truth-In-Lending Disclosure that will be provided to the borrower once the loan is approved. Limit of one Loyalty Discount per loan, and discount will not be applied to prior loans. The Loyalty Discount will remain in effect for the life of the loan.
  2. Automatic Payment Discount: Borrowers will be eligible to receive a 0.25 percentage point interest rate reduction on their Citizens Bank Personal Loan during such time as payments are required to be made and our loan servicer is authorized to automatically deduct payments each month from any bank account the borrower designates. If our loan servicer is unable to successfully withdraw the automatic deductions from the designated account two or more times within any 12-month period, the borrower will no longer be eligible for this discount.

* Important Disclosures for Upgrade Bank.

Upgrade Bank Disclosures

  • Personal Loan Rate DisclosureFixed interest rates from 6.49% – 19.49% (6.49% – 19.49% APR) based on applicable terms. Lowest rates range from 5.99%-18.99% (5.99%-18.99% APR), are for eligible applicants, require a 3-year repayment term, and include our Loyalty and Automatic Payment Discounts of 0.25 percentage points each, as outlined in the Loyalty Discount and Automatic Payment Discount disclosures. Subject to additional terms and conditions, and rates are subject to change at any time without notice. Such changes will only apply to applications taken after the effective date of change.
  1. Loyalty Discount: The borrower will be eligible for a 0.25 percentage point interest rate reduction on their loan if the borrower has a qualifying account in existence with us at the time the borrower has submitted a completed application authorizing us to review their credit request for the loan. The following are qualifying accounts: any checking account, savings account, money market account, certificate of deposit, automobile loan, home equity loan, home equity line of credit, mortgage, credit card account, student loans or other personal loans owned by Citizens Bank, N.A. Please note, our checking and savings account options are only available in the following states: CT, DE, MA, MI, NH, NJ, NY, OH, PA, RI and VT. This discount will be reflected in the interest rate and Annual Percentage Rate (APR) disclosed in the Truth-In-Lending Disclosure that will be provided to the borrower once the loan is approved. Limit of one Loyalty Discount per loan, and discount will not be applied to prior loans. The Loyalty Discount will remain in effect for the life of the loan.
  2. Automatic Payment Discount: Borrowers will be eligible to receive a 0.25 percentage point interest rate reduction on their Citizens Bank Personal Loan during such time as payments are required to be made and our loan servicer is authorized to automatically deduct payments each month from any bank account the borrower designates. If our loan servicer is unable to successfully withdraw the automatic deductions from the designated account two or more times within any 12-month period, the borrower will no longer be eligible for this discount.
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Our team at Student Loan Hero works hard to find and recommend products and services that we believe are of high quality and will make a positive impact in your life. We sometimes earn a sales commission or advertising fee when recommending various products and services to you. Similar to when you are being sold any product or service, be sure to read the fine print understand what you are buying, and consult a licensed professional if you have any concerns. Student Loan Hero is not a lender or investment advisor. We are not involved in the loan approval or investment process, nor do we make credit or investment related decisions. The rates and terms listed on our website are estimates and are subject to change at any time. Please do your homework and let us know if you have any questions or concerns.