Are you considering taking out a loan? If so, you’ve likely heard of co-signers and guarantors. What are the differences between the two?

A co-signer is someone who takes on the same level of responsibility for the loan repayment as the borrower. That means if the borrower fails to make payments, the co-signer is also held responsible. A guarantor, on the other hand, is someone who doesn’t have any responsibility for repayment until the borrower fails to make payments.

So let’s take a closer look at co-signers and what they bring to the table.

What Is a Co-signer?

A co-signer, also known as a joint applicant, is someone who agrees to be legally responsible for the loan if the borrower doesn’t make payments. This means if the borrower defaults on the loan, the co-signer is held liable for the remaining balance.

The most common type of loan that requires a co-signer is a mortgage. If the primary borrower doesn’t have the necessary credit score or income to qualify for the loan, they can get a co-signer to help them get approved.

In some cases, the co-signer can also get a share of the loan. This is known as a shared mortgage. In a shared mortgage, the co-signer will be held liable for a portion of the loan, usually around 50 percent.

Why Would Someone Want a Co-signer?

A co-signer can be beneficial for a borrower in a few ways. First, having a co-signer can improve the borrower’s chances of getting approved for a loan. That’s because the co-signer is taking on some of the risk of the loan, which makes it less risky for the lender.

Second, a co-signer can help the borrower get better loan terms. That’s because the co-signer’s credit score and income will be taken into account when determining the loan terms. This can help the borrower get a lower interest rate and better repayment terms.

Finally, a co-signer can help the borrower build their credit. That’s because the co-signer’s good credit will be reported to the credit bureaus, which will help the borrower’s credit score.

What Are the Risks of Being a Co-signer?

Being a co-signer is not without risks. First, the co-signer is taking on a lot of risk if the borrower fails to make payments. That means the co-signer will be held responsible for the remaining balance of the loan.

Second, the co-signer’s credit score and financial stability will be affected by the loan. That means if the borrower defaults, the co-signer’s credit score will suffer and their financial stability could be at risk.

Finally, the co-signer’s relationship with the borrower could be at risk. That’s because the co-signer is taking on a lot of risk and if the borrower fails to make payments, it could put a strain on their relationship.

Conclusion

A co-signer is someone who agrees to be legally responsible for the loan if the borrower doesn’t make payments. This can be beneficial for the borrower in a few ways, but it also comes with risks. That’s why it’s important to understand the risks and rewards of being a co-signer before you agree to take on the responsibility.