Co-Signer vs. Co-Borrower: What’s Better for Your Auto Loan?

Using a co-signer or a co-borrower can help you qualify for an auto loan that you otherwise wouldn’t be able to get. Learn more here.
Written by Drew Waterstreet
Reviewed by Jessa Claeys
Co-signing and co-borrowing are both strategies to help qualify for a
car loan
. However, a co-borrower has joint ownership of the vehicle, while the co-signer just serves as a financial safety net for the primary borrower.
Are you a newlywed couple looking to purchase your first
family car
? Or are you a fresh high school graduate hitting dealership lots as a
first-time buyer
Both of these unique situations call for different financing strategies. So follow along as we cover the pros and cons of using a co-signer and co-borrower on an auto loan and the appropriate circumstances for each.
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What is a co-signer?

A co-signer is someone who takes on financial responsibility for an auto loan without owning the vehicle. The co-signer is typically a family member or has a close relationship with the primary borrower. 
In many cases, loan applicants with bad credit scores or insufficient credit history will not qualify for favorable interest rates or loan terms. But when the borrower uses a co-signer, the loan terms will reflect the co-signer’s good credit score and positive financial situation. 
This shared responsibility gives the bank enough confidence to offer a larger loan amount and a lower interest rate.

How it works

If the primary borrower fails to make monthly payments, the lender can seek compensation from the co-signer. When a co-signer puts their signature on the dotted line of the loan application, they hold just as much legal responsibility to fulfill the missed payment as the primary borrower.

Pros and cons of co-signers

Being a co-signer for someone can be a great symbol of love and support. This could include helping a friend get back on their feet after irresponsible credit card use or assisting your child in affording their first vehicle. 
Lending a hand in the loan application process is certainly a nice gesture, but it’s essential to thoroughly consider all the possible outcomes before entering this contractual agreement. So, let’s take a look at some pros and cons.
  • Increased loan options: Having a co-signer can grant the primary borrower access to loan amounts and loan rates they otherwise may not have been able to get.
  • Improving credit score for the borrower: Making on-time payments can help the primary borrower improve their credit score, hopefully eliminating the need for a co-signer on another type of loan in the future—maybe even a mortgage loan!
  • Borrower ownership: The co-signer can help the borrower become the owner of a vehicle they otherwise would not have been qualified to finance.
  • No ownership: Co-signers are legally responsible for ensuring loan payments are made but do not own the vehicle. The skin in the game is limited to the relationship between the co-signer and the borrower.
  • Risk to relationship: Money has been known to complicate relationships, so you better be confident as a co-signer in who you decide to help out.
  • Potential credit damage: The co-signer’s credit profile may be negatively affected if the primary borrower fails to follow their repayment plan.

What is a co-borrower?

A co-borrower (also referred to as a joint applicant or co-applicant) is someone who shares an auto loan with another person
All borrowers on the loan have equal responsibility for payments and equal ownership of the vehicle. This financing strategy is typically used by spouses or partners who share personal finances and are purchasing a car together.

How it works

Two is better than one—at least when co-borrowing on a car loan. The lender doesn’t care how you split payments with your co-borrower. They just like the comfort of having two names financially responsible for the loan rather than one.

Pros and cons of co-borrowers

There are plenty of financial benefits of co-borrowing on an auto loan for the lender and the borrowers. But it’s important to understand all the potential drawbacks so that the agreement doesn’t fall apart. 
Let’s take a closer look.
  • Better loan terms: When you use a co-borrower, your combined debt-to-income ratio (DTI) and credit profiles may qualify you for a larger loan and lower interest rate—especially if you can afford a larger down payment!
  • Joint ownership: Both co-borrowers have equal ownership of the vehicle.
  • Shared debt liability: At the loan's origination, there won’t be any dedicated rules for how the payments must be split among co-borrowers. As long as the lender gets paid, they don’t care. So it is your responsibility to manage this shared debt liability with your co-borrower.
  • Risk to relationship: Co-borrowing can be a source of conflict if you or your co-borrower cannot contribute their fair portion toward the shared debt liability.
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Co-borrower vs. co-signer—which one do you need on your auto loan?

The bottom line boils down to this: You should use a co-borrower when you want to share a financing plan for a vehicle and a co-signer when you need help qualifying for an auto loan.
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The co-signer does not own the vehicle. Instead, they simply hold financial responsibility to cover late payments or assume the loan if the primary borrower defaults.
It depends on your situation! It’s better to have a co-signer if you have a poor credit report and are having difficulty qualifying for an auto loan. But it’s better to have a co-borrower if you want to own a vehicle with someone else and tackle the finances together.
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