Co-Signer vs. Co-Borrower: Key Differences When Getting an Auto Loan

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Getting an auto loan often requires having good credit or meeting other strict lending requirements. If your credit is lacking, you may need to add another person to strengthen your auto loan application. You essentially have two options – adding a co-signer or a co-borrower. While both can help you get approved, there are some important differences between the two.

Co-Signer Overview

A co-signer is someone who agrees to be responsible for repaying the auto loan if the primary borrower defaults. The co-signer does not receive any of the benefits of vehicle ownership – they simply serve as a financial backup.

Here are some key things to know about co-signers

The primary borrower is responsible for making all loan payments and remains the owner of the vehicle.
The co-signer must have good credit (typically 670+ credit score) and sufficient income to qualify and repay the loan on their own
The loan will appear on the co-signer’s credit report. If payments are missed, it damages their credit too.
The co-signer has no rights to drive or access the vehicle. Their role is strictly as a guarantor of the debt.
The co-signer is guaranteeing repayment of the entire amount financed, not just a portion.
The primary borrower and co-signer are both fully responsible for the debt. The lender can pursue either party in the event of nonpayment.

Adding a creditworthy co-signer is an effective strategy to help borrowers with poor credit or thin credit files qualify for an auto loan or get improved interest rates. The co-signer serves as a safety net for the lender.

Co-Borrower Overview

A co-borrower, in contrast, shares responsibility for the loan with the primary borrower. Here are some key things to know about co-borrowers:

Both co-borrowers apply together and are jointly responsible for repayment.
The loan shows up on both co-borrowers’ credit reports.
Defaulting negatively impacts both co-borrowers’ credit scores.
Both co-borrowers have equal rights to use the vehicle.
Income from both co-borrowers is used to qualify. This may allow for a higher loan amount.
If the relationship ends, both remain liable for the loan until it’s fully repaid.

Co-borrowers are most common for couples or family members purchasing a vehicle together. All borrowers are treated as equal owners.

Key Differences Between Co-Signers and Co-Borrowers

While co-signers and co-borrowers both provide a second signature on an auto loan, there are some important ways they differ:

Loan Responsibility

Co-signer: Primary borrower has sole repayment responsibility. Co-signer is a guarantor only.
Co-borrower: Both share responsibility for making payments and are equally liable.

Credit Impact

Co-signer: Loan only affects primary borrower’s credit unless they default.
Co-borrower: Loan affects both party’s credit history from the outset.

Rights to Use Vehicle

Co-signer: Has no rights to drive or access the vehicle.
Co-borrower: Has equal rights to drive and use the vehicle.

Qualification

Co-signer: Their income isn’t used, only credit history matters.
Co-borrower: Both incomes are used which may allow higher loan amount.

Ending Relationship

Co-signer: Primary borrower remains fully responsible for the loan.
Co-borrower: Both remain liable until the loan is fully paid off.

As you can see, there are significant implications in choosing a co-signer versus co-borrower. Understanding these key differences will help you make an informed decision.

Pros and Cons of Using a Co-signer

Adding a co-signer to your auto loan application has some potential benefits:

Pros

Improve chances of approval if you have poor credit
May allow you to get better interest rates
Co-signer’s income is not a factor – only credit history matters

Cons

Co-signer is responsible if you miss payments
Can harm co-signer’s credit if loan goes into default
Co-signer has no ownership rights to the vehicle

A co-signer makes the most sense when you want to get approved for an auto loan on your own and just need their credit record to strengthen your application.

Pros and Cons of Using a Co-borrower

Adding a co-borrower to an auto loan application offers other advantages and disadvantages:

Pros

May qualify for higher loan amounts with two incomes
Interest rate based on both credit scores
Both borrowers can drive and use the vehicle

Cons

Both remain liable until loan is paid off
Disputes over the vehicle if relationship ends
Lower credit score hurts interest rate for both

Co-borrowing works well for spouses, partners, family members purchasing together when both intend to use the vehicle being financed.

When to Use a Co-signer or Co-borrower

How do you decide which option is right for your situation? Here are some guidelines:

A co-signer makes sense when:

You have poor credit and need help qualifying
You want to own the vehicle solely in your name
You can afford payments comfortably on your own

A co-borrower makes sense when:

You plan to share vehicle ownership and use
You want to combine incomes to qualify for more
You want equal responsibility and liability for the loan

Take time to consider your specific circumstances to determine if a co-signer or co-borrower better meets your needs. Be sure to fully explain obligations to the other party before moving forward.

Getting Approved with Limited Credit

Don’t let past credit mistakes prevent you from getting approved for the vehicle you need. With the right co-signer or co-borrower, you can strengthen your auto loan application and improve the likelihood of getting approved. Compare multiple lenders to find the most advantageous terms. And remember, always make payments on time going forward to avoid harming you or your co-signer’s credit standing. Taking these steps can put you in the driver’s seat even with limited credit history.

Pros and cons of a co-signer

Can increase the primary borrowers approval odds.
It could help the borrower secure a lower interest rate.
On-time payments could boost both credit scores.
The primary borrower is the sole owner of the funds.

Must have good credit.
Both credit scores could suffer if the borrower pays late.
Legally responsible for repayment.
Damaged relationship if the loan isnt handled responsibly.

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co signer vs co borrower in an auto loan

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Co-Signer vs Co-Borrower | What’s the difference?

FAQ

What is the difference between a co buyer and a co-signer on an auto loan?

Co-borrowing is best for people who both have good credit and want equal rights to the vehicle — such as a couple that wants to buy a car together. On the other hand, a co-signer is best for a borrower who wouldn’t qualify for the loan at all, or needs help qualifying for a larger amount or lower interest rate.

Is it better to be a cosigner or co-borrower?

Both co-signers and co-borrowers can help strengthen your mortgage application by combining their finances and credit score with yours. Co-signers simply guarantee your mortgage, while co-borrowers will also have an ownership interest in the property you buy.

What rights does a co-borrower have on a car?

A co-borrower can take the car, but not without your permission. For example, if the co-borrower wants to take the car, sell it, or trade it in, you will need to sign off on it before the co-borrower can proceed. When it comes to signing the title to sell or trade in a car, there might be exceptions.

Who owns the car if there is a co-signer?

Although liable for payments if you default, the cosigner doesn’t share vehicle ownership. They also generally don’t make regular monthly payments. Co-borrower: Also known as a co-applicant, the co-borrower shares financial responsibility and ownership of the car from day one.

Do you need a co-signer or co-borrower to get a loan?

A co-borrower has more responsibility than a co-signer, and both can help you qualify for a loan. Co-signers have no ownership stake, but they still put their credit on the line. If you’re applying for a loan but struggling to qualify, you might benefit from a co-signer or co-borrower.

Do you need a cosigner for a car loan?

Borrowers can typically add a cosigner or co-borrower to their loan application. While these terms may seem similar, they mean two different things. Cosigner: This is a person with solid credit and income who can help boost your chances of approval. Although liable for payments if you default, the cosigner doesn’t share vehicle ownership.

What is an auto loan co-signer?

An auto-loan co-signer agrees to make monthly payments if the owner doesn’t. An auto loan co-borrower shares both responsibility for payments and ownership of the car. A second person on an auto loan is quite common, and most borrowers simply need the stronger credit profile of a co-signer.

Can a cosigner pay a loan?

A cosigner takes on repayment responsibility but usually doesn’t benefit from the loan funds. Both coborrowers and cosigners have a legal responsibility for repayment. When you apply for a loan with an additional person on the application, you have either a coborrower or a cosigner.

What is the difference between a co-signer and a primary borrower?

The co-signer typically has better credit or a higher income than the primary borrower, who might otherwise not get a loan application approved without the help of a co-signer. Co-signers typically have a close relationship with the primary borrower. A co-signer is typically a parent, immediate family member, a partner or spouse.

What is the difference between co-borrowers and co-signers?

The main difference between co-borrowers and co-signers is the level of investment in the loan. Co-borrowers have more responsibility and ownership than co-signers. Co-borrowing is best for people who both have good credit and want equal rights to the vehicle — such as a couple that wants to buy a car together.