Which is Better: Co-Signed or Joint Personal Loans

Everyone comes from a different financial situation. In some cases, you may have a rocky financial history or lack a steady income, which can make it tough to qualify for a personal loan on your own. That said, there are a couple of options that could help you qualify for a loan if you apply with another person on the application. With both co-signed and joint personal loans, you have another person who signs onto the loan with you, though there are some important differences to understand.

What is a Co-Signer?

A co-signer is a person who signs on the dotted line with you for a loan and agrees to take on the same responsibility as you when it comes to repayment. By signing, they are promising to abide by the repayment terms if you are unable to. In that way, they are legally liable for the debt in the same way that you are. The unique thing about a co-signed loan is that, while your co-signer is promising to make repayments if you are unable, they may not necessarily have legal rights or interest to whatever the loan is being used for. For example, a young man may have his father cosign his first auto loan, making his dad legally responsible for the repayments should he not be able to make them. The dad does not intend to use the car but has agreed to co-sign so that his son (who is a recent graduate with little to no credit history) can get a vehicle. 

For those with no or poor credit history, a co-signer can make lenders more willing to approve a loan and possibly even offer better interest rates. It’s important to know that if payments are missed, both you and your cosigner’s credit history will experience negative impacts. 

What is a Co-Borrower?

A co-borrower is also someone who signs with you on an application, but for a joint personal loan. With joint personal loans, both borrowers are equally responsible for repaying the loan and both may have equal legal rights to the property for which the loan is being used. These types of loans are ideal for people who are making a big purchase together and who both intend to pay back the loan. 

One example could be a couple who plan to renovate their home. By using a joint personal loan, both parties will be equally responsible for making repayments and both will also have legal rights to the money from the loan. Since they both have an ownership interest in what the joint loan will be used for, this may be the best option. 

Which is Better: Co-Signed or Joint Personal Loans? 

Knowing which type of loan is better will depend on a few factors. No matter which type of loan you apply for, it’s always better to have at least one co-signer or a co-borrower that has a good credit score. This can help you get approved for the loan and secure better interest rates. 

For people who simply want to leverage a friend or relative’s good credit history to secure a loan with decent terms, but who plan to make repayments on their own, a co-signed loan may be best. For people who intend to both use the money from the loan equally and share equal responsibility in repaying the loan, a joint personal loan may be best. 

In both situations, it’s important to fully understand your financial picture and how you plan to use the money. From there, you can decide which option may be best for you.