The Difference Between Cosigner & Surety

Cosigners and sureties are third parties qualified to guarantee payments or compensation in connection with high-profile loans and contractual agreements. The role of cosigners and sureties is to reduce the risk of loss, but the rights and obligations differ. A cosigner serves a supplemental role to a principal, whereas a surety serves as a guarantor for a principal. Cosigners and sureties both accept responsibility for the entirety of a loan's or contract's value if the principal is unable to pay.

A cosigner is a party that guarantees the repayment of a loan on behalf of the borrower. In addition to submitting a promissory document to the lender, a cosigner enters his signature on a loan alongside that of the borrower. Consequently, a cosigner assumes the same level of liability as the borrower. The borrower makes the necessary loans payments. The cosigner must pay only in the event that the borrower defaults.

A cosigner is needed if the lender finds that the borrower's monthly income is too low to afford to the payment amounts. A cosigner supplements the borrower's income for the purposes of the loan while accepting the same liability. If the loan is a mortgage, the cosigner also assumes equal ownership of the property and must be recorded as such in documents related to the home.

A surety is a guarantor typically associated with contracts involving a principal and a client. Where a contract is concerned, a surety pledges to compensate the client by way of a promissory note called a surety bond for any losses that may result from wrongdoing by the principal. In a loan, a surety pledges to compensate the lender on the borrower's behalf if the borrower fails to make timely loan payments.

Sureties are generally certified surety providers, banks, or other qualified parties prepared to pay a specific amount upon demand. A borrower may need to use a surety for a loan if his credit is problematic, but his income level otherwise qualifies. Unlike a cosigner, a surety does not assume a direct interest in any agreement or loan it guarantees. Rather, a surety assumes liability for the pledged amount only on the condition that a borrower defaults on payments or if a principal incurs losses to a client. Moreover, a surety may legally recoup any claimed compensation from the parties it guarantees.