Borrowing money for a home loan is always a complicated task with the amount of paperwork involved, but you are bound to share the responsibility with a joint applicant. The titles co-borrower, co-owner, co-signer and co-applicant, are used interchangeably, but there are subtle differences that one needs to be mindful of.
Here, we take you through the definitions and differences between each term as well as their pros and cons.
Co-Borrower or Co-Applicant
A co-borrower or co-applicant are terms that can be used interchangeably without disturbing their legal definitions. A co-borrower shares the responsibility of repaying the loan with the primary applicant and needs to have a stellar credit history. In the event of the death of the primary borrower or in case of a default the onus of repaying the loan falls on the co-borrower.
A co-borrower is married to the main borrower or is an immediate relative and needs to show a steady source of income as well as a strong credit history. This is to strengthen the loan application if the main borrower’s credit history is weak.
Pros
- Roping in a co-applicant enables you to borrow a larger amount
- Women get special concessions from banks including lower stamp duty fees
- Both applicants can get a higher tax concession under Section 80C
Cons
- If the relationship between the co-borrowers goes sour, it can be challenging to coordinate the payments
- In case of the demise of the main borrower the entire responsibility of paying off the loan falls on the co-applicant
Co-signer
Co-signing a loan is usually done as a favour when the primary borrower is unable to qualify for a loan. A co-signer helps the main borrower qualify for a home loan but otherwise has no interest or part in the property.
Pros
- A co-signer enables a loved one to achieve their dreams
- A co-signer can be instrumental in helping a credit history for someone
Cons
- If the main borrower misses or delays payment, the co-signer would be held responsible
- The loan is reflected on the co-signer’s credit report, and late or missed payments can affect the co-signer’s financial history
- Taking on the additional debt can impact the co-signer’s ability to avail a loan in the future for themselves
Co-owner
The biggest difference between a co-owner and a co-borrower is that the former cannot be a minor. Also, a co-owner is always a co-borrower, but the reverse need not necessarily be the case. A co-owner jointly shares the legal and financial responsibility as well as ownership of the property.
Pros
- Having a co-owner increases the eligibility for a loan as banks take into account the joint salaries of both individuals
- Income tax benefits can be claimed separately by both individuals
- Co-owners have the flexibility to decide on who can pay the EMI each month thus dividing the responsibility
- In the event of the death of one of the borrowers, it is easier to transfer the property to the co-owner’s name
Cons
- Banks can take longer to verify the documents when there are co-owners involved
- In case of a payment default, both parties will be affected equally
- Disagreements between the co-owners on key decisions like maintenance, selling the property, and other issues can potentially affect repayments, which in turn can reflect poorly on the credit history
