Who is a Co-Borrower?
A co-borrower is an additional borrower who applies for a loan with the original borrower and is equally responsible for the repayment of the loan.
The co-borrower is also assessed by the lender during the application for the loan, in respect of his income, assets, and credit history.
Co-borrowers are usually useful in situations where the original borrower is not qualified for the loan due to his inability to meet some of the requirements by the lender. Co-borrowers also increase the value of the principal credit to be approved.
Lenders also prefer lending to co-borrowers as it reduces the risk of default on the payment of the loan, especially as they can be assured of different sources of income being responsible for repayment. Co-borrowers represent security for lenders.
In cases of mortgage transactions, a co-borrower might not be a co-owner of the mortgaged property. However, this does not diminish the equal responsibility of the co-owner to repay the loan.
A co-borrower can be distinguished from a co-signer because a co-signer’s responsibility only arises in the event of default by the borrower. They act as guarantors and are not equally responsible for paying the loan like co-borrowers.