Cosigner vs Co-Borrower: Understanding the Key Differences

Jacqueline DeMarcoUpdated August 4, 2023

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Editor’s note: Lantern by SoFi seeks to provide content that is objective, independent and accurate. Writers are separate from our business operation and do not receive direct compensation from advertisers or partners. Read more about our Editorial Guidelines and How We Make Money.

When applying for loans, it’s common to come across the option to apply for a loan with a cosigner or a co-borrower. Is a co-borrower the same as a cosigner? No, these two terms mean totally different things. While a cosigner agrees to be responsible for someone else’s debt should they default, a co-borrower actually applies for the loan with another applicant and is also the recipient of the funds.

What Is a Cosigner?

If someone is struggling to qualify for a loan or for favorable interest rates, they may choose to apply for a loan with a cosigner. If the cosigner has good credit, a lower debt-to-income ratio, or a higher income, it can be easier to qualify for the loan. This is because the lender has more assurance the loan will be paid back on time, as the cosigner (which is different than a guarantor) has a responsibility to repay the loan if the primary borrower fails to do so. Essentially, cosigners lower the risk for the lender. Let’s look at some pros and cons associated with having a cosigner.

Pros of a Cosigner

Easier to qualify. Not only can having a cosigner make qualifying for loans easier, but they can also help the primary borrower qualify for a better interest rate.
Can improve credit. If someone can only qualify for a loan with a cosigner, doing so gives them the opportunity to make on-time payments and improve their credit score.

Cons of a Cosigner

Cosigner must have good credit. In order to qualify for the loan, the cosigner must have a good credit score and a low debt-to-income ratio.
Cosigner takes on risk. If the primary borrower fails to make timely loan payments, the cosigner ends up on the hook for those payments or risks hurting their credit score.
Hurts credit score initially. When applying for a loan with a cosigner, both the borrower and the cosigner need to undergo a hard credit inquiry, which temporarily lowers their credit score.
Can harm the relationship. Usually, only a close friend or family member agrees to be a cosigner. If the borrower doesn’t make their loan payments, that can cause stress for the cosigner and damage the relationship.

What Is a Co-Borrower?

When comparing cosigner vs co-borrower options, it’s important to understand how these roles differ. One of the main differences between co-borrowers and cosigners is that a co-borrower is applying for the loan equally. They are responsible for payments and they have equal access to any funds issued by the loan or assets tied to it (like a home when someone takes out a mortgage).These are some pros and cons associated with being a co-borrower.

Pros of a Co-Borrower

Easier to qualify for higher limits. Because two borrowers are applying, it can be easier to qualify for larger loan amounts if they both have sources of income.
Ownership of funds or assets. A co-borrower has equal access to the loan funds or the collateral linked to the loan.

Cons of a Co-Borrower

Can harm the relationship. Both co-borrowers need to be ready to work as a team to repay the loan on time or they risk fighting about the loan and forming resentments.
Shared risk. Each borrower is responsible for making their payments, and if one is not able to do so, that puts the other one at risk.

Should I Be a Co-Borrower or Cosigner?

If someone is trying to decide if they should be a cosigner or co-borrower, they need to take these factors into consideration:

Trust in the relationship. How much do they trust their co-borrower or the primary borrower to make their share of the loan payments (or full loan payments) on time? If both parties fail to repay the loan in either situation, they risk defaulting on the loan and hurting their credit scores substantially.
Risk of collateral. In the case of co-borrowers, there may be collateral backing the loan, and both borrowers risk losing that collateral if they fail to repay the loan.
Ownership of funds or assets. If you want ownership of the loan or assets, it’s best to be a co-borrower. If, however, you have no interest in the loan and are only agreeing to pay the loan back if the borrower cannot, being a cosigner may be best.

The Takeaway

Agreeing to be a cosigner or co-borrower for a loan comes with a unique set of risks. For cosigners, they risk the borrower of the loan not repaying the loan in full and on time — which means they’ll be on the hook for payments or risk damaging their credit score. Cosigners typically only cosign loans as a favor to a loved one, so they take on a lot of risk for no potential reward. With co-borrowers, they receive fair access to the loan funds and any assets those funds secure, but they still take on a decent amount of risk by sharing responsibility for a loan. It’s important before agreeing to be a cosigner or a co-borrower that both parties have a clear repayment plan in place and are comfortable communicating about the situation. If someone is looking for a personal loan, whether on their own, with a cosigner, or with a co-borrower, Lantern makes it possible to compare potential personal loans with different lenders all in one place. Compare top personal loans with Lantern to find the best terms and interest rates for you.

Frequently Asked Questions

How do I know if I need a co-borrower or a cosigner?

What are the risks of being a cosigner or co-borrower?

Can a cosigner become a co-borrower later on?

What happens if a co-borrower or cosigner defaults on a loan?

Photo credit: iStock/StockRocket

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About the Author

Jacqueline DeMarco

Jacqueline DeMarco is a personal finance writer and editor based in Southern California. While she spends the bulk of her time writing about complex financial issues, she also tackles a variety of subjects ranging from food to fashion to travel. Her work can be found across dozens of publications such as Credit Karma, LendingTree, Northwestern Mutual, The Everygirl, and Apartment Therapy.

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