Understanding Cosigned vs. Joint Loans

by Julia Guardione Updated on: May 23, 2019

Getting a loan is a big deal, but getting one with – or with the help of – another person is a bigger deal. Why? Because it makes all parties responsible for paying off the loan – it requires trust, trust, and more trust.

Whether it’s a desire for independence or a lack of trust in others (or both), most of us would most likely rather have a loan on our own. But often that’s not the most feasible option. Understanding your borrowing options can make you a better consumer and help you choose the loan that’s best for your situation.

Joint vs. Cosigned Loans

Joint

Before discussing which option is better for you, it’s important to understand the difference between the two loan types. Joint loans occur when more than one person receives benefits from a loan. They are both entitled to the funds, both are equally responsible for payment, and both members’ credit and debts will be factored into deciding loan approval. Therefore, applying jointly may produce more assets, income, and better credit for the lender to factor when determining loan approval, offers, and terms.

Cosigned

Cosigned loans occur when one person agrees to take responsibility for the loan in the event that the main borrower defaults. On cosigned loans, only one person benefits from the loan and is entitled to the funds. The cosigner only has secondary payment responsibilities after the main borrower. In decisioning the loan, both the cosigner and the borrower’s credit will be factored, though the cosigner’s credit will likely weigh heavier than the main borrower’s credit.

Think of it this way:

Put another way, think of a loan as an apartment lease.  When leasing as an individual, you live on your own and are solely responsible for rent payments. In a joint lease, there are two or more occupants. Both are on the lease, both have keys, both have parking spots, and both are equally liable for paying rent. Lastly, when cosigning a lease, there is typically one occupant, but because that occupant’s credit is insufficient for an individual lease, a cosigner is required. The cosigner would not be on the lease and would not live in the apartment, but in case the occupant fails to pay rent, the cosigner would become responsible for the remainder of that lease. 

Choosing Your Loan Type

Stake

When you want or need someone else involved in your loan, the first thing to consider is the stake you want the other person to have. If you’re comfortable with both of you on the loan, then a joint might be a great option. If you’d rather try it on your own with backup, then a cosigner might be the best choice.

 Finances

Another thing to consider is the other party’s financial situation. For both joint and co-signed loans, the other party’s finances are an important factor in the approvals, offers, and terms that you receive. For example, if you seek to purchase a car with your spouse but your spouse has bad credit history, it could be better to apply as an individual or to cosign on your spouse’s application.

Trust

Each of these scenarios requires mutual trust and the belief that both involved parties will take care of their responsibilities. After all, in both joint and cosigned loans, when one person fails to pay, it hurts the other person.

About The Author


Julia Guardione

Julia Guardione is RateGenius’ auto refinance expert. She is a graduate of Texas State University and a lover of all things outdoors. She lives in Austin, Texas with her dog and cat. She’s always open to new ideas, so if you have any suggestions or questions, email her at pr@rategenius.com.


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