Co-Signer vs. Co-Borrower on an Auto Loan: Pros, Cons and How They Affect You

racorn / Shutterstock.com

Commitment to Our Readers

GOBankingRates' editorial team is committed to bringing you unbiased reviews and information. We use data-driven methodologies to evaluate financial products and services - our reviews and ratings are not influenced by advertisers. You can read more about our editorial guidelines and our products and services review methodology.

20 Years
Helping You Live Richer

Reviewed
by Experts

Trusted by
Millions of Readers

Nothing puts a damper on car shopping like being turned down for an auto loan, but that doesn’t mean you don’t have other options. But some options, like charging a hefty down payment to a credit card or paying exorbitant interest to a buy-here, pay-here dealer, can make a difficult financial situation worse. A better choice is to find a co-buyer — aka co-borrower — or a co-signer: Either one can help strengthen your loan application.

Here’s what you need to know about the difference between a co-borrower versus a co-signer, so you can decide the best way to get approved for a car loan.

What Is the Difference Between a Co-Signer and a Co-Borrower?

Here’s a quick look at the difference:

• A co-signer helps the primary borrower (person buying the car) qualify for a loan — but they don’t share ownership of the vehicle.
• A co-borrower shares responsibility for the loan and ownership of the vehicle.

How a Co-Signer Works on an Auto Loan

A co-signer lends their good credit to the primary signer on a car loan, guaranteeing the lender or creditor that they’ll pay if the borrower doesn’t. The co-signer guarantees the debt and can be legally responsible for making car payments, plus late fees or collection charges if the borrower defaults on the loan.

Unlike a co-buyer, a co-signer has no ownership rights to the car.

How a Co-Borrower Works on an Auto Loan

A co-borrower is a co-buyer who serves as a co-applicant on a car loan. They are essentially an equal buyer of the car, meaning they receive all of the benefits of and responsibilities of car ownership.

As partners in the purchase, both co-borrowers sign all the documents associated with the loan and the sale. These typically include a sales contract, finance agreement contract, car title and car registration.

Co-Signer vs. Co-Borrower: Key Differences

Here’s a more visual breakdown of the differences between co-signers and co-borrowers:

Pros and Cons of Being a Co-Signer vs. Co-Borrower

Here’s a look at the pros and cons of either decision:

Pros of Being a Co-Signer

• Helps the borrower get approved for the loan.
• Doesn’t require shared ownership of the vehicle.
• Can help build the borrower’s credit (if payments are made on time).

Cons of Being a Co-Signer

• No legal rights to the car.
• Responsible for payments if the borrower defaults.
• Can have negative impacts on credit score and debt-to-income ratio.

Pros of Being a Co-Borrower

• Joint ownership allows both parties to use the car legally.
• Both share the financial responsibility.
• Easier to get approved with combined income and credit scores.

Cons of Being a Co-Borrower

• Both parties are equally responsible for loan payments.
• If one co-borrower stops paying, the other must pay for the full loan.
• Can become complicated financially if co-borrowers separate.

How To Decide Between a Co-Signer and a Co-Borrower

Whether you’re better off with a cosigner or a co-borrower depends on your plans for the car and the risk tolerance of the individual you ask to co-sign your application or apply jointly with you.

Having a co-buyer/borrower works more in your favor in terms of financing because you get the full power of the co-borrower’s income and good credit. But the boost in borrowing power comes at a price, especially if the co-borrower is someone other than your spouse. The co-borrower’s rights to the vehicle allow them to take possession of the car if you fail to pay — and even if you don’t, because you’re equal owners — and you’ll need their permission to sell the car later.

A co-signer has no ownership rights but might be harder to find. In addition to being responsible for the loan balance and fees, creditors can come after the co-signer without trying to collect from you first, possibly subjecting the co-signer to wage garnishment and lawsuit — and your default might land on their credit report. That’s a high price to pay, considering the co-signer can’t take possession of the car like a co-borrower can.

If the person wants to share any aspect of the car ownership, including driving it, then they may be better off as a co-borrower. If not, they may be better as a co-signer, but they’ll have to be OK with the risk they take assuming this role. Have a frank discussion about the long-term financial impact before making a final decision.

Final Thoughts: Which Option Is Right for You?

Whichever you choose, getting help with financing can help to improve your credit. You and your co-borrower or co-signer will be equally responsible for repaying the loan, and the payment history will appear on both of your credit reports, according to information on the Experian website. Making your payments on time is a great way to show appreciation for the person who helped you buy your car and ensure that when you’re ready to trade it in, you’ll qualify for financing on your own.

Share This Article: