When you apply for a loan with an additional person on the application, you have either a coborrower or a cosigner.
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, coborrowers and cosigners generally have different rights and responsibilities.
Definition of coborrower
A coborrower is someone who applies for a loan with another applicant. In most cases, both coborrowers benefit from the proceeds of the loan. They might use the money to purchase an asset together, such as a house or car, with both of their names on the title.
"Having a coborrower 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.
Both coborrowers 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).
Definition of cosigner
A cosigner 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 cosigner might put their name on the application to improve the primary borrower's chances of approval.
Unlike a coborrower, a cosigner generally doesn't enjoy the money from the loan in the same way a coborrower or primary applicant would. For example, if the money was used to buy a home or vehicle, a cosigner wouldn't generally expect to have their name listed on the title.
Key differences between coborrowers and cosigners
Legal obligations and responsibilities
A coborrower or cosigner 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 coborrower enjoys all the benefits of the loan proceeds, including ownership over any assets. A cosigner, on the other hand, takes on all of the risks without any of the rewards.
Impact on credit scores
A coborrower has to have good credit in order to get the best interest rate on a loan. 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.
In most cases, a cosigner is someone close to the primary borrower, such as a family member. Someone might need a cosigner when their income or credit score prevents them from qualifying for a loan on their own. While a cosigner might not have a legal claim to any assets purchased with the loan, they are still legally responsible for its repayment. If the primary borrower can't make the loan payments, the cosigner must do so or risk having their credit affected.
Advantages and disadvantages
Coborrower pros and cons
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Cosigner pros and cons
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When to choose a coborrower or a cosigner
Situations best suited for a coborrower
A coborrower 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.
A common example of a coborrower occurs when a couple applies for a mortgage together. In this case, both partners are coborrowers. 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, but 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.
Situations best suited for a cosigner
Popular situations when someone might use a cosigner include a young person applying for a student loan with their parents as cosigners, or someone who is working to rebuild their credit asking a loved one to cosign an auto loan or personal loan.
An example of when someone might use a cosigner 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 cosigner, in this case, is legally responsible for the loan, just like the primary borrower. If the loan payments aren't made, the cosigner will see their credit affected. However, a cosigner usually doesn't actually make any payments on the loan unless the primary borrower cannot.
Legal implications
If a borrower fails to repay a loan that has a cosigner, the cosigner may be responsible for paying back the entire loan, plus any interest and penalties. In most cases, the lender is not required to pursue the main borrower first and can sue the cosigner for repayment.
Removing a coborrower or cosigner
It's usually challenging to remove a coborrower since they have ownership interests in the collateral. A cosigner can be removed if the primary borrower refinances the loan independently.
Best personal loans that allow coborrowers
The best personal loan for you will depend on your creditworthiness and overall financial situation. These factors will determine the rates and terms you qualify for.
Opting to use a coborrower or a cosigner with good credit can improve your chances of qualifying for a loan with more favorable terms. Although coborrowing and cosigning are not the same, many lenders that allow coborrowers also offer the best cosigner loans. Here are some of our top contenders for loans that allow coborrowers and cosigners.
LightStream personal loans
LightStream offers some of the best cosigner loans at competitive rates. This lender doesn't charge any fees, and terms range from two to 20 years, depending on the loan type. LightStream loan amounts start at $5,000 and go up to $100,000.
Read our LightStream Personal Loan review
SoFi personal loans
SoFi lets you apply for a joint personal loan with a co-borrower. Similar to LightStream, SoFi doesn't charge any fees and offers personal loans up to $100,000. SoFi also has a high minimum credit score requirement of 670, so applying with a coborrower or a cosigner is likely to help you get approved.
Read our SoFi Personal Loan review
Upgrade personal loans
You can submit a joint application for an Upgrade personal loan with a co-borrower. Personal loan amounts from Upgrade range from $1,000 to $50,000. This lender offers terms from two to seven years. Additionally, Upgrade states that once your application has been approved and verified, you can receive funds in as little as one business day.
Read our Upgrade Personal Loan review
Check for personalized loan offers
Quickly get your personal loan rates without impacting your credit score.
FAQs about loan cosigners vs. coborrowers
Can a cosigner become a coborrower later on?
It's not that straightforward for a cosigner to become a coborrower after the loan has been finalized. This would require refinancing the loan to include them as a primary borrower.
Are coborrowers equally responsible for loan repayments?
Yes, coborrowers are equally responsible for repaying the loan. If one coborrower doesn't make payments, the other needs to cover the full amount.
How does cosigning a loan affect my credit score?
Cosigning a loan can affect your credit score just like it would if you were the primary borrower. Late payments by the primary borrower can negatively affect your score.
Can a cosigner take ownership of the collateral?
Cosigners typically don't have rights to the property or collateral securing the loan unless specified in a separate agreement.
Why would a borrower get a cosigner for a loan?
A borrower might get a cosigner if they have bad credit or no credit to improve their chances of approval. Having a cosigner with good credit may also help you qualify for better rates and terms.
