Defining a Co-Borrower

What Is a Co-Borrower?

A co-borrower is any additional borrower whose name appears on loan documents and whose income and credit history are used to qualify for the loan. Under this arrangement, all parties involved have an obligation to repay the loan. For mortgages, the names of applicable co-borrowers also appear on the property's title.

Understanding Co-Borrowers

Co-borrowers may be used on a loan for a few different reasons. Some loans may involve more than one borrower, such as a mortgage loan issued to married borrowers. In other cases, a co-borrower may be used to help an individual obtain a loan that they were not otherwise able to qualify for on their own.

A co-borrower is different than a cosigner in that a cosigner takes responsibility for the debt should the borrower default, but does not have ownership in the property. In a loan application with a co-borrower, all of the borrowers responsible for the loan must complete a credit application. The underwriting process examines the credit profiles of each co-borrower. Generally, terms of the loan will be based on the credit score and profile of the highest credit quality borrower. Since there is more than one debtor authorized for payment on the loan, co-borrower loans typically have lower default risk for creditors.

Benefits of a Co-Borrower

A co-borrower can be beneficial for a debtor who is unable to qualify for a loan or favorable loan terms. Having multiple borrowers on a loan can also increase the amount of principal credit approved on the loan.

A father, for example, could serve as a co-borrower on a consolidation loan for his son. By applying with a co-borrower, the son may qualify for the loan under his father’s higher credit score while also receiving a low-interest rate that allows him to pay off other high-interest debt.

Frequently, co-borrowers are spouses or partners who choose to apply for a mortgage loan together on a house they plan to buy. By using the combined credit profiles and income from two borrowers, the couple can qualify for a larger mortgage than could be obtained individually. They may also receive a lower interest rate since applying with the credit profiles, and income levels of two borrowers make them less of a risk for default to the issuing lender. Both borrowers agree to make the payments on the loan. Both borrowers will also be considered owners of the property on the title when the loan payments are completed.