Co-Borrower

Co-borrowers are partners who have jointly signed up as borrowers to a loan, and have become jointly responsible to repay the debt.

This is often the case for mortgages taken by households to purchase a family home.

The husband and wife both become borrowers as their joint income and aggregate credit score is required to qualify for the loan amount they desire.

They then become co-borrowers.

It can also be said that such a loan arrangement would have a primary applicant and a co-borrower.

Should the loan default, the lender will be able to pursue both or either of them for the full amount owed.

For example, businesses that take up business term loans often require directors and/or shareholders to be co-borrowers. They would then enter into the transactions being jointly responsible for the repayment. Should default occur, then the lender would have the legal right to pursue both of them or either of them for the outstanding debt balance.

Co-borrower vs guarantor

People often cannot tell the difference between a co-borrower and a guarantor.

But there’s a distinct difference between them that can have serious legal implications.

Co-borrowers are basically joint loan applicants whose income and credit records are used for a lender’s credit assessment process.

When the combined and aggregate assessment results do not satisfy a lender enough to approve the loan facility, possibly due to adverse credit, then an additional guarantor (with good credit) can be requested to be included in the application.

This guarantor would “guarantee” that the debt would be repaid by the borrowers but not responsible to meet the debt obligations.

It is only when the debt goes into delinquency and default when the guarantor would be obligated to take action towards repayment.

However, a lender has to still prove that default as occurred and that they have exhausted all efforts to collect the debt from the borrowers.

While most people might think about home loans and mortgages when discussing guarantors for loans, such arrangements and requirements are often demanded by lenders for all types of credit facilities and loan products.

For example, students who need to take up study loans to pursue their academic pursuits often don’t have any credit record on file as they are simply too young. In such cases, guarantors with satisfactory credit would be required in order to give a lender enough peace of mind to approve a student loan for education purposes.

Co-borrower vs co-signer

A co-signer is different from a guarantor in that it makes the signer equally responsible for loan repayments just like the borrowers.

So is there any difference between them?

The difference between co-borrowers and co-signers is that the funds being loaned and disbursed are meant for the use of the borrowers.

A co-signer technically has no use for the funds.

This can be best observed in private property mortgages when a couple have purchased a house, become joint owners and co-borrowers, but their income and/or aggregate credit is not enough to meet the minimum criteria set by the lender for the amount they are requesting.

If they require more income for the favorable computation of TDSR for example, then a co-signer with strong personal income can come in to favorably affect the ratios.

The co-signer would have no claim on the property but becomes equally liable for the repayment of the debt.

It goes without saying that co-signers are most often family members and relatives of the main applicants. Otherwise, there is little logical reason for someone to take on such risks.

Like a guarantor, a co-signer is usually only included into a loan application at the request of a lender as credit evaluation solely based on the borrowers’ credentials do not satisfy their internal requirements needed for approval.

It is sometimes said that a co-signer is effectively a guarantor, but a guarantor is not necessarily a co-signer.

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