A co-borrower and a joint borrower signify two different relationships with a lending institution, though they are somewhat related. Each supports a primary borrower, but with some subtle differences. When you are asked to be either of these, you must know the difference, since it will impact your own credit. You'll also be entering into a legally binding contract with a lender.
A Co-Borrower Relationship
A co-borrower takes out a loan with another person. The loan is jointly in your name and the name of the other person. The bank will accept payment from either party. If your co-borrower fails to make payment, the lender will approach you for payment. Any late payments may reflect badly on both of you, since you are both responsible for the loan.
A Joint Borrower Relationship
A joint borrower is a "backup borrower" who is made responsible for the loan when the original borrower does not pay. Some credit card companies or banks may use "joint borrower" to signify a "co-signer." A co-signer would be the same as a joint borrower in this case.
The joint borrower does not have to pay the loan until or unless the borrower defaults on the loan. The lender will not immediately come after the joint borrower. Instead, every attempt to collect from the original borrower will be made first. If this is unsuccessful, the joint borrower will need to satisfy the debt.
Both Borrowers Support Primary Borrower
A co-borrower and joint borrower both allow a primary borrower to get a loan when he otherwise might not be able to since the income and credit score of the co- or joint borrower is taken into consideration for the loan. The co-borrower or co-joiner acts as a guarantee for the primary borrower. The lender sees this as additional security for the loan from a risk-management perspective.
Legal Liability of Borrowers
You should be confident that the primary borrower will repay the loan. Otherwise, you should be prepared to repay the loan on behalf of the primary borrower. You cannot sue the primary borrower for funds that you must repay to the lender if the primary borrower defaults on the loan. You are co-signing or agreeing to repay the debt as well, so the debt is partially legally yours.
A Reality Check
Your credit score will be affected either positively or negatively by signing on the dotted line with another borrower. If the primary borrower makes late payments or defaults on the loan, this will ding your credit. Also, your credit burden is increased simply by sharing a loan with another borrower, which can affect your ability to qualify for other loans or credit cards.
- Free Dictioary.com: Borrower
- ValuePenguin: Cosigner Vs. Co-Borrower - What's the Difference?
- Consumer Financial Protection Bureau. "Making the Move to Homeownership on Your Own or With Someone Else." Accessed Mar. 27, 2020.
- Consumer Financial Protection Bureau. "I Was Asked to Co-Sign Financing for a Car. What Am I Being Asked to Do and What Does This Mean for Me?" Accessed Mar. 27, 2020.
- Consumer Financial Protection Bureau. "I Am Not Married but Want to Submit a Joint Application for a Mortgage or Home Equity Loan With Another Person. Can We Be Treated Differently From Married Joint Applicants?" Accessed Mar. 27, 2020.
- Consumer Financial Protection Bureau. "How to Decide How Much to Spend on Your Down Payment." Accessed Mar. 27, 2020.
I am a Registered Financial Consultant with 6 years experience in the financial services industry. I am trained in the financial planning process, with an emphasis in life insurance and annuity contracts. I have written for Demand Studios since 2009.