Do you Know How Co-Signers are Different from Co-Applicants?

Who are Co-Applicants?

A co-applicant is an individual who applies for the loan with you and both share equal responsibility of repaying the borrowed amount with interest. Their income and creditworthiness increase your chances of loan approval at a better interest rate. They are legally obliged to repay the loan, and missed EMIs negatively impact their credit scores.

Eligibility and Requirements to be Co-Signers

Apart from fulfilling the lending institution’s minimum requirements for an instant Personal Loan application, your co-signer will also need the following:

• Good Credit Score: The lenders will check their credit score to ensure they meet their minimum requirements. 
• Sufficient Income: The lenders want to ensure that both the borrower and co-signer have sufficient income to repay the loan.
• Positive Payment History: Delinquencies in the co-signer’s credit report will reduce your loan eligibility.
• A Low DTI Ratio: The lenders will evaluate their existing debts to ensure loan affordability based on their debt-to-income (DTI) ratio.

Key Differences Between Co-Signers vs Co-Applicants

Now that you understand the co-applicant and co-signer meaning, let’s look into the differences between the two:

Parameter	Co-signer	Co-applicant
Repayment Responsibility	A co-signer acts as a loan guarantor and may support the primary borrower during a financial crunch.	A co-applicant shares equal responsibility of repaying the loan in case the primary borrower defaults.
Scrutiny	While both's income and credit scores are important for lenders, the scrutiny is more lenient than that for a co-signer.	Profile scrutiny is stricter for a co-applicant.
Tax Benefits	A co-signer is not eligible for any such tax benefits.	According to the Income Tax Act, a co-applicant who is also a co-owner is eligible for tax benefits.
Relationship	A loan co-signer can be anyone from a friend to a family member with a solid income and good credit history.	Generally, when applying for an instant Personal Loan, the co-applicant is usually the borrower’s spouse, parent, or child.
Ownership Rights	If the borrower uses a Personal Loan to purchase an asset, a co-signer usually has no ownership rights.	A co-applicant’s name appears on most loan documents, and they have ownership rights if the borrowers purchase an asset using the loan.

Why a Co-Signer is Required in a Personal Loan?

What is a co-signer? They are required when the primary borrower requires someone to share the loan responsibility. If you have an insufficient income, poor credit score, or bad credit history, you may add a co-signer with a stable income and good credit to improve your chances of loan approval. 

By co-signing the loan, the individual guarantees to repay the dues if the primary borrower defaults. Eventually, the arrangement reduces the lender's risk. As a result, they agree to offer easier loan approvals for higher loan amounts at lower interest rates.

Why a Co-Applicant is Required in a Personal Loan?

A co-applicant is an individual who submits the loan application along with you as the primary borrower. Both you and the co-applicant share the equal responsibility of repaying the borrowed loan amount with interest. Usually, you will need them when your credit history or income is insufficient to apply for an independent loan. Lenders, like Hero FinCorp, will assess their income and creditworthiness, increasing your chances of loan approval at better interest rates. 

A co-applicant shares the legal obligation to repay the loan on time. Any loan defaults or missed EMIs will also appear on their credit report, potentially impacting their credit score.

Pros and Cons of Using Co-Signer

Let’s look into the pros and cons of using a co-signer:

Pros:

• Increases your odds of getting loan approval.
• Helps you secure a loan at a lower interest rate.
• On-time payments will boost both credit scores.
• You are the sole owner of the funds and assets.

Cons:

• You must find a co-signer with a good credit score.
• The co-signer is legally responsible for loan repayment if you default.
• Damaged relationship if you do not handle the loan responsibly.

Pros and Cons of Using Co-Applicants

Here’s a look at the pros and cons of using a co-applicant:

Pros: 

• It becomes easier to qualify for a loan.
• Boosts loan eligibility for a higher loan amount at a lower interest rate.
• Equal responsibility for loan repayments.
• Shared ownership of the funds and assets.

Cons:

• Hard credit inquiries temporarily reduce the credit scores of both parties.
• Risk of repaying the loan alone if the co-applicant cannot help.
• Credit scores of both will suffer in case of missed EMIs or loan defaults.
• Damaged relationships or legal battles over funds or assets.

Conclusion

Applying for an instant Personal Loan is a big responsibility and financial liability. While a co-signer or co-applicant helps you get a loan with favorable terms and conditions, it may damage your relationship in case of a default. 

If you require an instant Personal Loan of up to Rs 3 Lakh, consider applying online with Hero FinCorp. Before applying, use a Personal Loan Calculator to calculate your EMIs and choose a repayment plan that best suits your affordability.

Frequently Asked Questions

1. Who is considered a co-signer?

An individual or company co-signing the loan application and agreeing to repay the loan in case of default is called the co-signer.

2. Is a co-signer the same as a co-owner?

No, the co-signer only shares the responsibility of repaying the loan. They do not have any ownership rights over the asset purchased with the loan.

3. What is the role of a co-signer?

A co-signer guarantees loan repayment if the primary borrower defaults. Their income and credit score improve your loan eligibility and boost your chances of approval.

4. Is the co-signer the primary owner?

The primary borrower is the person applying for the loan to cover their expenses. The co-signer is the secondary borrower who signs the loan agreement. 

5. Can I remove myself as a co-signer?

You may remove yourself as a co-signer by getting a loan release, transferring the balance, refinancing the debt, or opting for debt consolidation.

Disclaimer: The information provided in this blog post is intended for informational purposes only. The content is based on research and opinions available at the time of writing. While we strive to ensure accuracy, we do not claim to be exhaustive or definitive. Readers are advised to independently verify any details mentioned here, such as specifications, features, and availability, before making any purchasing decisions. Hero FinCorp does not take responsibility for any discrepancies, inaccuracies, or changes that may occur after the publication of this blog. The choice to rely on the information presented herein is at the reader's discretion, and we recommend consulting official sources and experts for the most up-to-date and accurate information about the featured products.