What is a co-borrower?
- Co-borrowers help people successfully obtain a loan
- The co-borrower has ownership interest
- Specific examples where a co-borrower is helpful
Borrowing money is not a simple process. There are many different things to consider if you want to be successful in getting a loan. That way of thinking applies to every single type of loan available.
Your credentials are one of the most important things for you to prepare. All loan providers will make the necessary effort to know if you are capable of paying for the loan you are applying for. If you are not qualified, then a co-borrower can help you out.
If you are new to the world of loan products, you might be wondering what a co-borrower is. To give you a brief gist, a co-borrower is a person that helps you obtain a loan you would not otherwise be able to get on your own. If you are serious about getting a loan, then continue reading. Knowing what a co-borrower is and how it differs from a cosigner can be very beneficial for you.
Co-borrowers Help People Successfully Obtain A Loan
As mentioned above, a co-borrower is a person that will give you a better chance of getting a loan. Your co-borrower will function as a guarantor — guaranteeing that the debt will be paid. However, by virtue of being a guarantor, your co-borrower shares the responsibility of paying for the loan if you happen to default on it.
Regardless of your ability to pay for the loan you are applying for, if you fail to back it up with good credit scores and a proven track record, you should still expect to experience some difficulty.
By having another person responsible for paying, loan providers are much more comfortable letting you borrow money. It is important to remember here that not just anyone can be your co-borrower. The person must be someone with good credit, a stable income, and little-to-no debt. The terms of the loan will also depend on your co-borrower’s financial credibility, so choose a reputable person that you can have the best terms possible with.
The Co-borrower Has Ownership Interest
The next thing to note is that a co-borrower has ownership interest. This means that they will have a stake in whatever it is you purchased or invested in using the money. In most cases, this refers to equal ownership.
Ownership interest is where a co-borrower differs from a co-signer, another type of guarantor. A co-signer will also be responsible for paying for a person’s loan. However, they will have no rights or any form of ownership toward the asset you used the money on.
This is why aside from asking someone reputable and financially stable to be your co-borrower, they must also be trustworthy. In most cases, spouses, family, and close friends are the best choices.
Specific Examples Where A Co-borrower Is Helpful
Now that you know what a co-borrower is, here are some specific instances where having one can be useful:
Home Loan
You just recently married and are looking to buy your first home. If you have no history of big purchases, having your wife as your co-borrower can help you secure a mortgage loan to purchase that house you’ve been eyeing. Assuming that you and your wife have a stable job, having each other as co-borrowers is a common way of getting approved for a loan. This also works for car loans.
Business Loan
Another example would be in the business sense. If you and your business partners are looking to purchase a commercial property or other high-value assets, then co-borrowing the necessary funds for it is a valid strategy. Given that you can get better terms such as a lower interest rate or a bigger amount, you will be able to make the necessary business moves and purchases.
Even if you are a prospective businessman looking to establish an enterprise, a business loan is still vital for you to have the necessary capital to invest. If you are planning to have it as a sole proprietorship then consider having a family member such as a parent to be your co-borrower.
It is important to note here that a co-borrower is not applicable for lease agreements and other rented items. For those situations, you would need a cosigner to be your guarantor.
Key Takeaway
Knowing the different ways you can secure a loan can help prepare you for the time you will have to get one, especially if your child is about to start schooling or if you are planning to buy a house. However, just as you can ask someone to be your co-borrower, you can also be asked to be one by another person.
Being a guarantor will make you responsible for due payment. Any outcome, whether positive or negative, will be reflected permanently in your credit score and records. Always analyze the situation and use your best judgment before agreeing to be one.
If you are the one in need of a guarantor, then be responsible and pay on time to avoid any complications in the future.
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