Short answer: on a joint loan, two people apply together, both are borrowers and both can owe the full balance. A cosigner adds their income and credit to help someone else qualify and promises to pay if that borrower does not, but does not necessarily get any rights to what the loan pays for (CFPB). Either way, the lender can collect the whole debt from either person.
Side by side
| Co-borrower (joint applicant) | Cosigner | |
|---|---|---|
| Role | Applies together with you; both are borrowers | Adds income and credit record to your application to help you qualify or get better terms (CFPB) |
| The money or what it buys | Shared, as the two of you agree | Not necessarily any rights to it (CFPB) |
| Owes the debt | Yes; on a joint account each person is responsible for the full amount (CFPB) | Yes; may have to pay up to the full amount, and can be collected from without the lender first trying the borrower (16 CFR 444.3) |
| Credit reports | For spouses on a shared account, reported so it shows in each spouse's name (12 CFR 1002.10) | Missed payments can appear on the cosigner's credit reports (CFPB) |
| Notice before signing | Disclosures as a borrower | A Notice to Cosigner, from lenders covered by the FTC rule (16 CFR 444.3) |
The cosigner side, including the full text of the notice and what cosigning does to your own borrowing, is covered in cosigning a loan: what you take on.
How a lender can look at two applicants
Example only, our calculation, using debt-to-income ratio (monthly debt payments divided by gross monthly income). Applicant A earns $3,000.00 a month with $600.00 in debt payments; applicant B earns $2,500.00 with $250.00; the new loan payment is $300.00.
| Application | Debt payments including the loan | Income counted | Ratio |
|---|---|---|---|
| A alone | $900.00 | $3,000.00 | 30.0% |
| A and B jointly | $1,150.00 | $5,500.00 | 20.9% |
A joint application counts both incomes and both sets of debts. How each lender weighs a cosigner varies, so ask. More on the ratio: debt-to-income ratio.
Your rights under Regulation B
- If you qualify on your own for the amount and terms you asked for, a creditor may not require your spouse's or anyone else's signature, other than a joint applicant's (12 CFR 1002.7(d)(1)).
- Sending a joint financial statement does not turn your application into a joint one (12 CFR 1002.7(d)(1)). Your intent to apply jointly must be shown at the time of application, and signatures on the loan note alone do not show it (Reg B comment 7(d)(1)-3).
- If you do not qualify alone, a creditor may ask for a cosigner, guarantor or similar party. Your spouse may be that person, but the creditor may not require that it be your spouse (12 CFR 1002.7(d)(5)). A lender also cannot force someone to put their information on another person's loan (CFPB).
- Secured loans and loans that rely on jointly owned property have narrower exceptions, where another owner may need to sign the papers that let the lender reach that property (12 CFR 1002.7(d)(2) to (4)).
- If spouses share an account, a creditor that reports to credit bureaus must designate it to show both, so the history can be found in each spouse's name. This does not apply to a guarantor, surety or similar party (12 CFR 1002.10).
If you split up, or one of you dies
A divorce decree can assign a debt to one spouse, but it does not change the fact that the creditor can collect from anyone whose name is on the loan. You generally stay responsible unless the creditor releases you or the other person refinances and removes your name (CFPB). For what happens when a borrower dies, see personal loan debt after death.
Before you sign together
- Agree in writing between yourselves who pays what each month, knowing the lender is not bound by that agreement.
- Make sure each of you could afford the whole payment alone.
- Ask how the lender will report the loan, and check both credit reports after the first payment.
- Ask whether the lender has any process to release one borrower later, and what it requires.
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Disclosure: Modern Lending Solutions is not a lender, loan broker or agent for any lender or loan broker, and does not make credit decisions. Any compensation we receive is paid by participating lenders, only for advertising services. This guide is general information, not financial or legal advice.
Sources
- CFPB: Should I agree to co-sign someone else's car loan?
- CFPB: Am I responsible for charges on a joint credit card account if I didn't make them?
- 16 CFR 444.3: Unfair or deceptive cosigner practices (FTC Credit Practices Rule, Notice to Cosigner)
- Regulation B, 12 CFR 1002.7(d): signature of a spouse or other person, and additional parties
- Regulation B, Supplement I to Part 1002, comment 7(d)(1)-3: evidence of joint application
- Regulation B, 12 CFR 1002.10: furnishing credit information for accounts of both spouses
- CFPB: Can a debt collector contact me about a debt after a divorce?