Quick overview

When two people apply for a personal loan together they can either be co-borrowers or include a co-signer. The distinction is simple but important: co-borrowers are joint applicants with shared rights and obligations; co-signers are guarantors whose credit and assets support the loan but who usually don’t use the funds. These roles affect approval odds, interest rates, debt-to-income (DTI) calculations, credit reporting, and options for release or removal.

How lenders view co-borrowers and co-signers

  • Co-borrowers: Lenders treat co-borrowers as equal loan applicants. The lender evaluates both applicants’ incomes, credit histories, and debts when underwriting. Combined income and credit profiles can qualify borrowers for a larger loan amount or lower rate. Both names appear on the promissory note and both parties have equal legal responsibility for repayment.

  • Co-signers: A co-signer’s job is to strengthen the borrower’s application by vouching for repayment ability. Lenders typically consider the co-signer’s credit history and sometimes their income, but the primary borrower is the one who receives and uses the loan proceeds. The co-signer’s liability is triggered if the primary borrower misses payments or defaults (Consumer Financial Protection Bureau, CFPB).

(Authoritative source: Consumer Financial Protection Bureau — co-signing responsibilities and risk: https://www.consumerfinance.gov)

Who benefits — and who takes the risk

  • Benefits to co-borrowers: Both co-borrowers gain the benefit of the loan (cash, property, etc.), and both can build credit by making timely payments because the account is typically reported on both credit reports. That can help both parties improve credit scores over time if payments are timely.

  • Benefits to co-signers: The primary borrower benefits primarily. Co-signers do not receive funds or ownership, but they help the primary borrower access credit they otherwise could not get.

  • Risks to co-borrowers and co-signers: Late or missed payments can damage the credit scores of co-borrowers and co-signers alike because the account is a shared legal obligation. Co-signers often underestimate the risk: the account may be reported on their credit report and collectors can pursue them for unpaid balances.

Credit reporting and your score

Most lenders report the account to the three nationwide credit bureaus (Experian, TransUnion, Equifax) in both co-borrower and co-signer situations. That means:

  • On-time payments can help both parties’ credit.
  • Late payments and defaults will lower both parties’ credit scores.
  • The loan increases reported debt and can affect each party’s DTI when applying for future credit.

Because reporting rules vary by lender, always ask how the account will appear on credit reports. The CFPB notes that co-signers may see the account appear on their credit history and that they’re fully liable for the debt if the borrower fails to pay.[CFPB]

How co-borrowers and co-signers affect loan approval and price

  • Debt-to-income (DTI): Lenders include a co-borrower’s obligations in DTI calculations, which can either help (by adding income) or hurt (by adding obligations). For co-signers, some lenders include the co-signer’s obligations in DTI even if they aren’t the primary borrower, especially for mortgages and large unsecured loans.

  • Interest rates: Adding a creditworthy co-borrower usually lowers interest rates because the combined credit profile is stronger. A co-signer can similarly reduce rate or enable approval, but because the co-signer does not share ownership, lenders sometimes treat the credit differently. Always get written terms.

  • Underwriting standards differ: Some online and bank lenders won’t accept co-signers but will accept co-borrowers; others treat co-signers the same as co-borrowers for underwriting purposes. Ask the lender what they will accept before applying.

Removal and release options

  • Co-borrower removal: Removing a co-borrower from an active loan generally requires refinancing the loan in one party’s name or executing a formal release through the lender (rare for unsecured personal loans). For mortgages and some secured loans, there are specific procedures to remove a co-borrower — see refinancing and loan modification options.

  • Co-signer release: Some lenders offer a formal cosigner-release process after a period of timely payments and a demonstrated improvement in the primary borrower’s credit. Requirements vary by lender but typically include a minimum number of on-time payments and a re-underwriting of the primary borrower’s creditworthiness. More detail: Cosigner release guidelines at FinHelp (How Cosigner Release Requests Are Evaluated by Lenders: https://finhelp.io/glossary/how-cosigner-release-requests-are-evaluated-by-lenders/).

FinHelp resources: read about how cosigners affect personal loans (https://finhelp.io/glossary/how-cosigners-affect-your-chances-of-getting-a-personal-loan/) and specific release strategies (https://finhelp.io/glossary/cosigner-release-when-and-how-to-remove-a-cosigner/).

When to choose co-borrower vs co-signer: practical guidance

  • Choose a co-borrower when:

  • Both parties will use or benefit from the loan proceeds (e.g., joint purchase).

  • You want both people to build or improve credit through the account.

  • Both parties are comfortable with shared legal liability and ownership.

  • Choose a co-signer when:

  • The primary borrower lacks sufficient credit history or income but the co-signer cannot or does not want to claim ownership.

  • The co-signer is willing to back the debt but not take on responsibility for using or managing the asset.

In my practice I advise clients to treat co-signing as a last-resort tool: co-signing can damage relationships and finances if expectations about repayment aren’t documented and enforced.

Practical steps to protect both parties

  1. Get it in writing. Even with joint loan documents, create a private agreement that clarifies who pays when — include payment schedules and consequences if someone misses a payment.
  2. Automate payments. Automatic bank withdrawals reduce missed payments and protect both parties’ credit.
  3. Monitor credit reports. Each party should check their credit reports at least annually (and more often while the loan is active) at AnnualCreditReport.com and consider credit monitoring tools.
  4. Understand state law. Some states treat co-debt differently in bankruptcy and divorce; consult an attorney for complex situations.
  5. Consider alternatives. If the risk to the co-signer is unacceptable, consider options such as secured loans, building credit with small installment loans, or paying down debts to improve qualifying ratios.

Examples and scenarios

  • Married couple buying household items: As co-borrowers they likely both benefit; combined income improves approval odds and both will share credit impact.

  • Parent co-signing for a young adult’s personal loan: The parent doesn’t get the funds but is on the hook if the borrower defaults. If the borrower makes timely payments, both may see credit improvements; if not, the parent’s credit and liquidity are at risk.

  • Friends splitting a car loan: Co-borrowing makes sense because both will use the asset and want ownership rights — but include a written repayment agreement to avoid disputes.

Common misconceptions

  • “A co-signer won’t be on my credit report unless I default.” Incorrect: co-signed loans typically appear on both credit reports from the start.
  • “Co-signers can’t be sued unless the borrower defaults.” Incorrect: co-signers are joint obligors and collectors can pursue them for missing payments, sometimes immediately depending on state law and lender actions.

Questions to ask a lender before you apply

  • Will the account be reported on the co-signer’s credit report? How will it be listed?
  • Does the lender allow co-borrowers or only co-signers (or both)?
  • What is the lender’s cosigner-release policy and what are the exact requirements for removal?
  • Will the lender include the co-signer’s obligations in DTI calculations? If so, how?

Bottom line

Co-borrowers and co-signers are powerful tools to help people qualify for loans, but they carry very different rights and risks. Co-borrowers share ownership and ongoing responsibility; co-signers guarantee the loan primarily as a safety net for the lender. Both positions can affect credit scores, future borrowing, and personal finances — so choose carefully, document expectations, and talk to a trusted financial advisor or attorney for high-value loans.

Disclaimer: This article is educational and reflects common lending practices as of 2025. It does not constitute legal or personalized financial advice. For guidance tailored to your situation, consult a qualified attorney or financial advisor.

Authoritative sources and further reading