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Co-Borrower Vs. Co-Signer In Student Loans

Co-Borrower Vs. Co-Signer In Student Loans

Written by Kimberly Linhares

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August 19, 2021

Co-borrower vs Co-signer in student loans, both share responsibility for debt but they aren’t the same. There are many situations in which you either can’t or don’t want to borrow money on your own. In these situations, you may need either a co-signer or a co-borrower. You may also be asked to become a co-signer by someone in your life who wants to borrow. 

Co-signers and co-borrowers both share legal responsibility for the debt, and lenders take their credit and income into account when deciding whether to guarantee an approved loan and setting interest rates. However, a Co-borrower vs Co-signer in student loans is not the same and it is important to know the difference.

Co-signers are people who guarantee debt for someone who cannot qualify on his or her own. The understanding is that the primary borrower is the person legally responsible for repaying what is owed. On the other hand, co-borrowers are people who want to take on a shared debt with another person. The understanding is that co-borrowers will work together to repay a loan taken out for a joint purpose. Before you agree to be either a co-signer or a co-borrower, you should learn a little bit more about the role you’re taking on. The guide below on Co-borrower vs Co-signer in student loans will help you to understand better. 

Co-Borrower Vs. Co-Signer What Is The Difference

What Is A Co-Signer?

Co-signers are people who help someone to qualify for debt when that person could not otherwise get a loan. The co-signer’s credit and income are considered by the lender. If the co-signer is better qualified than the primary borrower, the loan may be approved when it would otherwise have been denied, or the primary borrower might get a lower interest rate.

Mostly, a co-signer has full legal responsibility for loan repayment if the primary borrower doesn’t pay. Even though the goal is for the primary borrower to be the person who repays the loan. If the primary borrower doesn’t pay, the co-signer could face ruined credit or collections activities. 

In most cases, a co-signer would remain legally responsible for repaying debt even if the primary borrower passes away. However, there are a limited number of cases when someone cosigns for the student loan debt. The debt might be forgiven upon death or permanent disability of the primary borrower. 

Co-signers can also sometimes be released from legal responsibility for the loan after the primary borrower has made a certain number of on-time payments. Again, this is most common with student loans, rather than in other situations such as cosigning for a personal loan or a car. In most of these other situations, the only way to remove a co-signer’s legal responsibilities would be for the primary borrower to refinance the student loan once his or her credit has improved. 

One big downside of cosigning is that the co-signer doesn’t usually directly benefit from the loan. If someone cosigns for an auto loan, for example, the co-signer is unlikely to be named on the title of the vehicle. The co-signer wouldn’t have an ownership interest in the car even though they would be legally responsible for payments on the car loan if the primary borrower stopped making them. 

What Is A Co-Borrower?

A co-borrower is someone who borrows along with someone else. The co-borrowers usually both want and benefit from the loan, unlike in cosigning situations when the primary borrower wants the loan and the co-signer just helps them to get it. 

Co-borrowers share responsibility for repayment in the eyes of the lender, just as co-signers do. But unlike in a cosigning situation in which the co-signer usually only ends up paying if the primary borrower can’t or won’t. The co-borrower typically intends to share responsibility for making payments. 

If co-borrowers take out a joint loan to buy an asset, they also usually both have a legal right to the asset, in addition to legal responsibility for paying for it. For example, if two people are co-borrowers on a home mortgage, they would both have their names on the title to the house.  

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Co-Borrower Vs. Co-Signer Which To Use

Let’s dive into which method would be more effective, useful and the best option based on the situation of Co-borrower vs Co-signer in student loans

When Is A Co-Signer The Best Option?

It is possible to cosign on most types of loans, including auto loans, personal loans, and student loans. A limited number of credit card issuers also allow co-signers, but usually only in cases in which the primary borrower is a student or has very limited income.

Some types of loans only allow co-signers, not co-borrowers. For example, co-borrowers aren’t allowed on student loans, but co-signers are incredibly common. So if a young person doesn’t qualify for the student loan on his or her own, a co-signer would be the only choice.

Cosigning is also the right approach when all parties want to be clear that the primary borrower is the one who should be paying back the loan. The primary borrower is the one who will receive the bills in a cosigning situation, even though the creditor can come after the co-signer if the primary borrower defaults.  

If a co-signer hopes to be absolved of responsibility for the loan, in the event of death or disability after co-signer release becomes available, then cosigning also makes sense. And if the primary borrower wants to retain sole ownership of the asset that he or she is borrowing for, then cosigning is usually best.

When Is Co-Borrowing The Best Option?

Co-borrowing is the best approach when the borrowers want to share the responsibilities of the loan and any assets. In particular, co-borrowing is usually best for joint mortgages on a shared home, joint business loans for a shared business venture to make money, or joint auto loans for a shared car.

Credit card companies more commonly allow co-borrowers than co-signers. So if you and your spouse, partner, or friend want to share a credit card that you both charge on and that you pay for together, co-borrowing is generally the best way to achieve this.

Make Sure To Understand The Differences Between A Co-Borrower vs. Co-signer

While you understand Co-borrower vs Co-signer in student loans, it is also important that you make the right choice. Whether you want to borrow money with someone else or you are being asked to cosign a loan, you must understand the differences between cosigning and co-borrowing. Your rights and responsibilities are very different depending on which of these options you choose, so make sure you pick the right one for you!

PS: If there’s anything more you’d like us to know about. Add it to the comments section!

Thank you for reading this blog on ‘Co-Borrower Vs. Co-Signer In Student Loans’ If you’d like to read more, here are some blogs that might be of interest to you:

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