Four terms related to home loans that are often misunderstood are co-borrower, co-owner, co-signer, and co-applicant. On the surface, the terms may seem similar, or maybe you can make out the apparent difference between each. But if you are to be engaged in any of the above roles, you need to have a clear idea of what you’re getting yourself into, lest you’re caught off-guard at the time of loan repayment.
Who is a Co-Borrower of a Home Loan?
Under a Joint Home Loan, multiple people can share the loan burden. A co-borrower is an additional borrower whose name will appear on the loan documents and whose credit history will also be used for loan eligibility. Consequently, he will be equally obligated to repay the loan amount.
Role Of Co-Borrower
– Shared repayment responsibility: A co-borrower shares equal responsibility for the loan repayment along with the primary borrower. There can be multiple co-borrowers on a loan.
– Improved eligibility: A co-borrower’s income profile and credit history are used to qualify for the loan, improving approval chances.
– Joint liability and ownership: A co-borrower is jointly liable for the loan along with the primary borrower. They may also share ownership of the asset.
Usually, co-borrowers on a loan tend to be partners, spouses, or close family members of the primary borrower.
Benefits Of Having A Co-Borrower In The Home Loan
– Improved loan eligibility:If the primary applicant doesn’t meet the lender’s credit or income criteria, adding a co-borrower can strengthen the application and improve loan approval chances.
– Better terms: A co-borrower with a strong financial profile and high credit score can help secure a higher loan amount or better interest rates, as lenders assess the combined creditworthiness.
– Lower default risk: With two responsible borrowers, the risk of default reduces, making the loan less risky for the lender. This may result in more favourable terms, including lower interest rates.
Who is a Co-Owner of a Home Loan?
A co-owner is an individual who assumes ownership of an asset or property in proportion to what has been settled in the ownership agreement. Consequently, the co-owner of a home loan will need to assume responsibility for home loan repayment if they wish to enjoy home loan tax benefits.
Role Of Co-Owner
– Shared ownership: A co-owner shares legal ownership along with others. They reserve certain rights and responsibilities in relation to the asset, as determined by the terms of agreement.
– Defined share in the asset: Each co-owner owns a certain percentage of an asset, which is agreed upon in advance. In property cases, this may involve joint tenancy or other shared ownership structures.
– Individual responsibility: A co-owner is accountable only for their own share and is not legally obligated to act in the interest of the asset or other co-owners.
Benefits Of Having A Co-Owner In The Home Loan
– Tax benefits: In India, co-owners can claim individual tax deductions on both principal and interest repayment under Sections 80C and 24(b) of the Income Tax Act. These benefits are proportionate to their share in the property and are applicable only if the property is fully constructed.
– Cost sharing: Buying a high-value property becomes more manageable with a co-owner, as the financial burden is shared, from the down payment to EMIs and other related costs.
– Improved eligibility: A co-owner who is also a co-borrower adds to the overall income and credit profile, improving the chances of home loan approval and possibly securing better loan terms.
Who is a Co-Signer of a Home Loan?
A co-signer is an individual with a good credit score who takes surety for the borrower of a home loan to repay the loan in case of any defaults on the borrower’s part. A co-signer cannot remove themselves from their position once they have agreed for surety and also risks his personal credit score.
Role Of Co-Signer
– Legal guarantee: A co-signer functions as a legally responsible party, guaranteeing repayment alongside the primary borrower.
– No ownership: The co-signer is not required to make monthly EMI payments and holds no ownership rights over the property.
– No tax benefits: Since the co-signer doesn’t own the property or repay the loan directly, they are not eligible for any tax deductions.
– Liability in case of default: If the primary borrower defaults and fails to make repayments towards the loan, the co-signer is liable for the outstanding debt. In such a scenario, the co-signer’s credit score can be impacted negatively.
Benefits Of Having A Co-Signer In The Home Loan
– Stronger application: A co-signer with a strong credit history can help the primary borrower qualify for a home loan, especially if their credit score is low.
– Better loan terms: The co-signer can help in securing better loan terms, higher loan amounts, and lower interest rates.
– Lower risk for lender: For a financial lender, the presence of a co-signer reduces the lender’s risk, making loan approval more likely and terms more favourable.
Who is a Co-Applicant of a Home Loan?
A co-applicant is an individual who applies for a home loan along with the primary borrower. Co-application of a home loan is usually done to improve the Joint Home Loan eligibility where the co-applicant’s income is used to supplement the income of the borrower.
Role Of Co-Applicant
– Active partner: A co-applicant jointly applies for the home loan with the primary borrower and plays an active role throughout the loan process.
– Close relation: The co-applicant is usually a spouse, partner, or a close family member.
– Shared financial and legal responsibility: The co-applicant shares financial responsibility with the primary borrower and hold shared ownership over the property.
Benefits Of Having A Co-Applicant In The Home Loan
– Improved eligibility: With combined incomes, co-applicants can improve the chances of loan approval and qualify for a higher loan amount.
– Shared responsibility: A co-applicant shares both legal and financial responsibilities towards the property and the home loan. This makes the loan a lower-risk proposition for the lender.
– Tax benefits: According to the Income Tax Act, both co-applicants can individually claim tax deductions on home loan interest and principal repayment, based on their share in the loan and property.
Difference between a co-borrower, co-owner, co-signer, and co-applicant
Categories
Co-Borrower
Co-Owner
Co-Signer
Co-Applicant
Definition
A co-borrower is an individual who takes a joint loan along with the primary borrower
A co-owner has a legal share in the property for which the loan is to be taken
A co-signer signs the home loan application along with the primary borrower mainly to improve his credit standing
A co-applicant applies for a home loan along with the principal borrower
Loan Burden
A co-borrower is liable to share the responsibility of loan repayment
A co-owner is liable to share the loan burden
A co-signer, though is not responsible for paying the EMIs, he or she is liable to repay the outstanding loan amount in case of defaults on the borrower’s part
Co-applicants have a shared responsibility towards loan repayment
Tax Benefits
Cannot enjoy tax benefits if he is not a co-owner
Entitled to enjoy tax benefits
Not entitled to avail tax benefits
Can enjoy tax benefits provided he or she is also a co-owner
How To Choose Between A Co-Signer And A Co-Applicant
Choosing between co-signers and co-applicants depends on your specific financial situation and long-term goals.
– Financial Health: The presence of a co-signer can help you meet the eligibility criteria for a home loan if your income is insufficient.
– Credit Score: A co-applicant with a strong credit history can improve your chances of securing a home loan with better terms, especially if your own score is low.
– Long-term Plans: If you want the person to share ownership of the property and take joint responsibility for the loan, opt for a co-applicant. If ownership is not required, a co-signer is more suitable.
When To Choose Which?
Co-borrower:
– Choose a co-borrower if you need a stronger application through combined income and credit strength.
– Ideal for joint home loans with a spouse, partner, or in a shared family or business setup where responsibilities and repayment are shared.
Co-owner:
– Pick a co-owner if shared legal and financial responsibility is a long-term goal.
– Picking co-owners is beneficial if all parties intend to invest in and benefit from the asset in the form of resale value, tax benefits, or inheritance
Co-signer:
– Choose a co-signer if your credit score is low and you need someone with a stronger profile to help secure the loan.
– Useful for those who want to support someone’s financial journey without taking on repayment or ownership responsibilities.
Co-applicant:
– Pick a co-applicant if combined incomes can help meet loan eligibility criteria.
– Best when the person is a spouse or close family member and you plan to share both the loan repayment and property ownership in the long run.
Conclusion
Understanding the differences between co-borrowers, co-owners, co-signers, and co-applicants is especially useful when applying for a home loan. Consider the similarities and differences, along with your credit score and financial history, to determine the right choice for your situation.
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What is the difference between a co-borrower and a joint applicant?
Both co-borrowers and joint applicants take financial responsibility for the loan along with the primary borrower. However, co-borrowers typically have a greater financial liability and may also contribute to the property ownership, whereas joint applicants may or may not.
What is the difference between a co-signer and a co-applicant?
Co-signers have no claim over property and are only responsible if the primary borrower defaults. Co-applicants share ownership of the property and are equally responsible towards loan repayments.
What is the agreement between a co-signer and a borrower?
A co-signer agreement legally binds the co-signer to repay the loan if the primary borrower fails to do so, although the co-signer has no ownership in the asset.
Is it necessary to have a co-applicant in a home loan?
It is not mandatory to have a co-applicant when applying for a home loan. However, some lenders may require one depending on your income, credit profile, or loan amount requirements.
06 May 2025
9 mins read
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