While these two terms may seem interchangeable, lenders use these terms differently.
Lenders know the difference, and so should you
Here at Auto Credit Express, we know that the informed consumer is our best customer. If the banks know the difference, you should, too.
How a co-signer and co-buyer are the same
There are a number of things that are similar when it comes to co-signers and co-borrowers:
- Both are co-applicants and, as such, are also responsible for the loan. If the primary borrower is unable to meet the loan obligations, than the co-signer or co-borrower must make payments on the loan.
- Both the co-signer and co-borrower are signatories on the loan. This means that in addition to the primary borrower, the co-signer and co-borrower both appear on the loan and sign the loan agreement documents.
- In the event the loan goes into default, both a co-borrower and co-signer can be subject to collection action that includes garnishment.
- During the loan application process, the lender will review the credit reports of both the co-borrower and the co-signer and take the credit history(s) into consideration for the approval process.
The difference as it applies to car loans
While the credit histories of both types of co-applicants will be taken into consideration, lenders treat the incomes of each type of co-applicant differently. In fact, the bank will classify co-applicants as a co-signer or co-borrower depending on how their income relates to the primary borrower.
Co-borrower – This individual’s income can be added to (commingled with) the applicants income in order to meet the income requirements of the loan. The total income of both individuals is used to qualify for the loan. In most instances, this would mean that the co-borrower is the husband or wife of the applicant.
Co-signer – While the credit score of this individual will be considered in meeting the credit history requirements of the loan, their income, by itself, will not be considered in order to meet the income requirements of the loan. Both the primary borrower and the co-signer have to individually qualify for the income requirements of the loan.
Now you know the whole story.
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