What’s the Difference Between Guarantor and Co-signer?

A co-signer on a loan is equally liable for payments, while a guarantor becomes responsible only when payments cannot be made.
Written by Claire Beaney
Reviewed by Jessica Barrett
A co-signer is equally liable for a
car loan
, while a guarantor becomes responsible for a loan if the borrower cannot pay it. While the terms may seem interchangeable if you’re just hearing them for the first time, there is a distinct difference in responsibilities between the two.
One similarity between the two is that lenders will use the co-signer or guarantor’s credit, income, and debt as a deciding factor when giving out the loan. Learning the difference between the two can be important if you need to either help someone out with their auto loan or find assistance yourself.
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Continue reading to learn more about the differences between guarantor vs co-signer and which option might be the best for you.
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What is a co-signer?

A co-signer is equally responsible for the loan as the primary borrower.
A co-signer might be necessary when the primary borrower isn’t financially stable enough to qualify for the loan by themselves. A parent, for example, might co-sign on an auto loan for their child’s first car.
The lender typically looks at the finances of both the primary and secondary borrowers to calculate a debt-to-income ratio. The added income of the co-signer should, ideally, help a
lower-income borrower
guarantee the loan.
Key Takeaway Having a co-signer can be helpful for borrowers who do not have enough credit to qualify for a loan.

Pros and cons of having a co-signer

Be sure to keep the following in mind when deciding whether or not a co-signer would benefit you.
Extra income can help the borrower get a loan they might not otherwise qualify for.
The co-signers credit may be damaged if the borrower misses loan payments.
Helps the primary borrower establish credit or improve their credit.
A co-signer may have to pay late fees, collection costs, or even face legal action if the loan is unpaid.
Having a co-signer may help the borrower qualify for lower interest rates.
MORE: How to get a cosigner for a bad credit car loan

What is a guarantor?

A guarantor, on the other hand, only becomes responsible for the loan in the event that the primary borrower cannot repay it.
The guarantor acts as more of a secondary form of repayment and is most common in business loans, where the primary borrower is a business entirety and the owner acts as the guarantor.
In terms of an auto loan, having a guarantor can be especially helpful for young drivers or those with poor credit.
MORE: What is a guarantor on a lease?

Pros and cons of having a guarantor

There are both advantages and disadvantages to bringing a guarantor on to help with a loan.
The borrower is more likely to have their application approved.
Damage can be done to both the borrower and guarantor’s credit score if payments aren’t made.
Helps the primary borrower establish credit or improve their credit.
Interest rates can be higher than other unsecured personal loans.
A guarantor may help the borrower qualify for more money.

Which is better, a co-signer or a guarantor?

Though they’re similar, the difference between a co-signer and guarantor is important to know when you are looking for help to take out a loan.
With a co-signer, there is more immediate responsibility, as they have to help with payments without the borrower having to exhaust all of their options.
With a guarantor, they act more like a backup plan, where they are only liable for the debt if the borrower has exhausted all of their options.
If you need a guarantor, then you are most likely in a bad place with your loan—so if you feel like you are in a risky position financially, then a co-signer might be your best bet.
MORE: 8 easy tips for saving money on car insurance
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The best way to tell if you need a co-signer or guarantor is to look at your personal credit history.
If taking out an auto loan by yourself would cause massive financial stress, or lead to extremely high-interest rates, then taking on a co-signer or guarantor is probably a good idea.
Refinancing your loan is doable, even if you have bad credit. 
It will definitely be more difficult, but there are ways to improve your credit and refinance your loan.
By refinancing your auto loan, you can aim to get better interest rates or lower monthly payments. Adding a co-signer or guarantor to your application when applying for refinancing can help you out tremendously.
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