Co-borrower vs. co-signer

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• A co-borrower applies for a loan with another person, usually taking on full responsibility for the loan repayment and full ownership over any assets purchased.
• A co-signer helps someone else get approved for a loan and also takes on repayment responsibility but usually doesn't benefit from the loan funds.
• Both co-borrowers and co-signers have a legal responsibility for the loan repayment, but they're generally used in different situations.

When you apply for a loan with an additional person on the application, you have either a co-borrower or a co-signer.

In either case, the lender will consider that person's income and credit history when approving the loan and setting the interest rate. Additionally, that party is legally responsible for the repayment. However, co-borrowers and co-signers generally have different rights and responsibilities.

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Co-borrower vs. co-signer: At a glance

A co-borrower or co-signer can each improve your chances of being approved for a loan and getting a better interest rate or credit limit than you would qualify for on your own. However, a co-borrower enjoys all the benefits of the loan proceeds, including ownership over any assets. A co-signer, on the other hand, takes on all of the risk without any of the reward.

• A co-borrower is someone who takes out a loan with another person and fully benefits from the proceeds of the loan.
• A co-signer is someone who applies for a loan with another person to improve their chances of approval but doesn't benefit from the loan proceeds at all.

What is a co-borrower?

A co-borrower is someone who applies for a loan with another applicant. In most cases, both co-borrowers benefit from the proceeds of the loan. For example, they might use the money to purchase an asset together, such as a house or car, with both of their names on the title.

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"Having a co-borrower generally increases your chances of getting a better interest rate and higher credit limit," says Laura Sterling, VP of marketing at Georgia's Own Credit Union.

When two people borrow together, both their incomes and credit scores are taken into account. As Sterling notes, the higher joint income could allow the pair to borrow more than they would have if only one of them had applied for the loan themselves.

Both co-borrowers are legally responsible for the loan payments. If the pair fails to make payments on the loan, those missed payments will appear on both borrowers' credit reports and will negatively affect both of their credit scores (though the impact could be more significant on one person's credit score if they had a better score to begin with).

A co-borrower is usually the best option if you and another person — often a spouse or partner — are borrowing money to make a joint purchase and you'll both enjoy the proceeds of the loan.

Co-borrower pros and cons

Co-borrower example

A common example of a co-borrower occurs when a couple applies for a mortgage together. In this case, both partners are co-borrowers. They will each be listed on the application and the lender will consider both of their incomes and credit histories when approving the loan and deciding on an interest rate.

Not only are both partners listed on the application, each also benefits from the loan. In the case of a mortgage, each partner is likely to be listed on the home's deed and will enjoy the benefits of homeownership. And if they decide to sell the house, each partner is entitled to proceeds.

What is a co-signer?

A co-signer is someone who agrees to apply for a loan alongside another borrower but without the expectation of benefiting from the proceeds of the loan. Instead, the co-signer might put their name on the application to improve the primary borrower's chances of approval.

In most cases, a co-signer is someone close to the primary borrower, such as a family member. Someone might need a co-signer when their income or credit score prevents them from qualifying for a loan on their own. 

"Because the lender will look at the credit history of both the borrower and co-signer, the borrower not only has a better chance of qualifying for the loan but is more likely to get a lower rate and higher credit limit," says Sterling. 

Popular situations when someone might use a co-signer include a young person applying for a student loan with their parents as a co-signers, or someone who is working to rebuild their credit asking a loved one to co-sign an auto loan or personal loan.

Unlike a co-borrower, a co-signer generally doesn't enjoy the money from the loan in the same way a co-borrower or primary applicant would. For example, if the money was used to buy a home or vehicle, a co-signer wouldn't generally expect to have their name listed on the title.

Co-signer pros and cons

Co-signer example

An example of when someone might use a co-signer is if they are applying for an auto loan and won't be approved — at least not at a decent interest rate — on their own. In that case, they might ask a loved one to co-sign the loan.

The co-signer in this case is legally responsible for the loan, just like the primary borrower. If the loan payments aren't made, the co-signer will see their credit affected. However, a co-signer usually doesn't actually make any payments on the loan unless the primary borrower cannot.

An important difference between a co-borrower and a co-signer is that a co-signer generally doesn't enjoy the money from the loan. In the case of an auto loan, the co-signer may not be listed as an owner on the car's title.

Co-borrower vs. co-signer FAQs