While weighing cosigner vs co-borrower, you must take into account the pros and cons associated with both and then decide. Taking a digital personal loan becomes easier with a co-borrower, and a cosigner with a strong credit history can lower personal loan interest rates.
While applying for a personal loan, make sure that you know the cosigner vs co-borrower debate. People use both terms interchangeably; however, the two concepts vary in responsibility.
Assume that you have applied for a digital personal loan, a cosigner signs on the application along with you. By doing so, they agree to be as responsible for the timely repayment of the loan as you are. Likewise, they are also equally at fault as you are in case there is a default in deadlines. Therefore, they share the responsibility with you even though they do not benefit from the loan amount in any way.
On the other hand, a co-owner is an entity that legally owns the property which serves as collateral for the personal loan. Such a person is either the sole owner of the property or has a share in it. More importantly, the owner should be legal for sharing the loan amount and the tax benefits. Due to the legal implications, co-owners cannot be minors and need to be eligible for a digital personal loan under Indian law.
Do you require a cosigner, a co-owner, or a co-borrower?
You require a cosigner when you are –
- Short on finances;
- Lack a steady source of income;
- Starting a new venture;
- Buying an asset, like a vehicle or property;
The most viable solution in such scenarios is a personal loan and this is where a cosigner comes in. For example, if you are 18 years old and wish to start a new venture, the only way to get a financial loan is to have a cosigner. It could be your parents, relatives, or a mentor. Neither of these parties benefits from the loan, but sign the document to help you out.
Co-owners can also be co-borrowers or co-applicants, wherein they own the property either partially or wholly. An important point here is that while co-owners can be co-applicants of the loan, a co-applicant may or may not be the co-owner. Only when the banks insist that co-owners should also share responsibility for the loan that they become co-borrowers and co-applicants.
Compared to the above two concepts, a co-borrower is as crucial to the loan amount as the main borrower. Suppose you are the main borrower of a loan, a co-borrower is ideally an adult and should be your spouse or close relative with a steady source of income. They should also be willing to take the responsibility of paying back the amount and the personal loan interest rates if you default on the repayment.
Cosigner vs co-borrower decoded
A cosigner can make a difference when –
- The credit score against your name is unsatisfactory to the point of causing lenders to regard you as a high-risk customer;
- You are relatively young, and the lender feels more comfortable at the inclusion of an older and wiser cosigner with an established financial situation;
- Being self-employed, which implies the lack of steady income and hence a risky option for the lender;
- A sky-rocketing debt against your existing income, which can cause a lender to doubt if your lending should be limited;
Given a choice, lenders prefer a self-sufficient borrower who can shoulder the burden of personal loan rates on their own. The cosigner can help with seeking approval of the loan, but takes a step back after approval, thus providing freedom to the primary borrower. In contrast, a co-borrower is involved in every stage of the loan, from approval until repayment.
Final thoughts
If you are losing out on an attractive opportunity due to financial reasons, having a cosigner can be a viable solution. Likewise, if you need a partner who will be with you all along, a co-borrower is your best bet.
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