Advantages of a Co-borrower vs Co-signer
A co-borrower or a co-signer can help you get a loan, but only a co-borrower is your equal on the loan. A co-borrower is a partner who applies for the loan with you. A co-signer signs after you’ve filed your loan application, agreeing to be your backup if you don’t make the payments. See: Should I Get a Co-borrower for My Mortgage Loan? – Realtor.com.
Finance companies and banks calculate loan limits by dividing your total recurring debts by your gross income, to determine your debt-to-income ratio. If you need a larger loan than your ratio allows, a co-borrower gives you an advantage. The co-borrower’s income and debts count as if you are a partnership. A co-borrower can also contribute payments on the loan and upkeep costs for the purchased item. The co-borrower usually shares responsibility for the item and shares the title. Read: The Difference Between a Cosigner and a Co-borrower – FHA.
Protection From Default
When you apply for a loan, you may be denied for a lack of credit history or short time at your job. The bank or finance company may refuse to lend the requested amount because of your lack The lender may approve your loan, provided you have the signature of a co-signer. This is because having a co-signer adds a second layer of protection from default, which makes the lender feel more comfortable loaning you money.
Having a friend or parent co-sign on a loan may ruin a good relationship if you don’t make the payments. If you are considering the role of co-signer, review the Federal Trade Commission notice before you sign. When signing as a co-signer, realize that if the person you are taking responsibility for can destroy your credit if they miss their payments.
If you are a co-borrower, you are a co-owner. You share the loan proceeds and are likely named on the title for the purchase. If the debt is a mortgage loan, both co-borrowers benefit from the federal income tax interest deduction. Co-borrowers are equally liable for the full amount of the loan.
If something happens to one co-borrower, the other one is legally bound to make the payments. In return, the deed may give you full ownership upon death of the co-borrower.