Joint Loan vs. Co-Signing – Is There a Difference?
A joint loan and co-signing can help you get approved for a loan. With both types of loans, the party with a better credit history improves the chances of getting more money and lower interest rates. But, co-borrowers benefit more from a joint loan than a co-signer benefits from a personal loan.
Joint Loan
A joint loan involves two or more individuals applying for a loan. For example, you and your spouse may apply for a joint mortgage loan if you want to buy a house. If approved, both you and your spouse benefit from co-owning the house and have property rights.
Lenders hold co-borrowers equally responsible for repaying a joint loan. A joint loan, then, ties the co-borrowers’ credit history together. So, defaulting on a joint loan can damage the co-borrowers’ credit scores.
Co-Signed Loan
A co-signed loan also has two signatures attached to the debt. But, a co-signer does not benefit from the loan’s proceeds. For instance, a person may co-sign for a car but have no rights to the car. Yet, the co-signer remains liable for making payments should the car owner default on the loan. A personal loan with a co-signer benefits the primary borrower, unlike a joint loan where co-borrowers receive loan proceeds.
Who benefits from a joint or co-signed loan may not matter depending on the purpose for getting the loan. For instance, a parent may co-sign for a loan to help his or her child buy a car. The parent may view this as helping the child build credit and take on added responsibility. In addition, a friend may co-sign to help a long-time friend realize a dream of starting a business.
In these instances, individuals want to help borrowers despite the financial risks of a personal loan with a co-signer.