Over the years, borrowing money has become less complicated due to dramatic changes in technology and financial theory. On the one hand, where lenders now have access to a colossal amount of financial data, you on the other, have various credit scoring tools to know your eligibility for a loan. Many lenders allow you to apply with a co-signer or a co-borrower on your loan. You can choose to use either of them to help you increase your chances of getting approved.

Both co-borrowers and co-signers can help you qualify for a loan, but they have different implications on you as the primary borrower. When you want a loan, but your credit or income holds you back from qualifying, you can add a co-signer. And, when you want to get a loan but want someone to share the burden of repayment along with you, you may add a co-borrower.

If you are still unable to decide whether to get a co-signer or a co-borrower for your loan, here are three main distinguishing factors that can help you decide between the two:

Credit Check

Primary borrowers with poor credit or low income have an option to add a co-signer or a co-borrower to get qualified for a loan. When you choose a co-signer, the lender will only consider the creditworthiness and income of the co-signer. So, you can simply get a loan with no income verification with a co-signer. Also referred to as a guarantor, a co-signer even promises to repay a loan if you cannot. But remember, your default in paying the loan amount can impact the co-signer’s credit score.

The most ideal situation when people use a co-signer is when they haven’t started to build credit. For example, students may add their parents as co-signers to help them get their student loan approved. But remember, if you don’t make payments a co-signer’s credit score can be impacted if the borrower doesn’t make payments.

Talking about co-borrowers, they are also known as a joint applicant for a reason. When you apply for a loan with a co-borrower, the lender will evaluate creditworthiness by combining the assets, income, and credit history of both you and the co-borrower. Hence, both of you are equally responsible for repaying the loan. Your partner or spouse can be a perfect fit for being your co-borrower and help you qualify for a more substantial loan amount, which wouldn’t be possible to get applying alone.

Purpose of the Loan

If you apply for a loan to buy a house, a co-signer usually doesn’t have any ownership interest in that house. They are there to support you to get the loan and simply pledge that you will pay back the loan. In the same scenario, a co-borrower not only helps you get a loan but may also have an ownership interest in that house. Now you know why we mentioned that co-borrowers are usually partners or spouses as they have the same reason to get the loan as you do. That’s the primary differentiating factor between a co-borrower and a co-signer.

Loan Repayment Responsibility

A co-signer assures the lender that you will pay back the loan. If you make all the loan payments in full and on time, a co-signer will not have to pay even a single amount of money for taking the guarantee. However, for some reason, if you are unable to pay, the co-signer will be responsible for paying the entire debt off.

On the contrary, co-borrowers have a similar interest in the property as the primary borrower, and therefore, their role is always more significant than a co-signer when it comes to making payments. A co-borrower makes payments for the loan along with you and not when you default on your loan payments. That’s why some lenders also refer to a co-borrower as a joint applicant.

And the Decision is Yours!

Now that you know how co-signing and co-borrowing differ from one another, yet ultimately help you qualify for a loan, you can make a better choice. You need to contemplate whether you require a guarantor or a joint borrower who can share your loan responsibilities. Whoever you choose, the person should be someone you can trust. After all, it’s about money!