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Distinction Between Co-applicant And Co-signer For A Home Loan

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Purchasing or constructing a new home has become easier owing to home loans. You only have to check your monthly repayment on a home loan emi calculator and pay it within due time. However, in some cases, home loan applications are rejected because of financial ineligibility or low credit score. In such cases, the borrower can opt to apply for the home loan with a co-applicant or co-signer.

What are Co-applicant and Co-signer?

A co-applicant or a co-borrower is equally responsible for the home loan. For home loan applications with a co-applicant, you need to provide the lender with your and the co-applicants details. Therefore, in this case, both applicants’ financial status and credit scores are considered for loan approval. 

On the other hand, a co-signer is someone who acts as a guarantor for the loan applicant. The co-signer is responsible for missed loan repayments only.

Differences Between Co-applicant and Co-signer

Although co-applying and co-signing may seem similar, they have significant differences. The following are the primary aspects that differentiate a co-applicant from a co-signer.

1. Responsibility of Repayment

The responsibilities of a co-applicant is different from a co-signer. Co-applicants are co-borrowers, making them equally responsible for repaying the loan. Meanwhile, co-signers are not obliged to share equal responsibility with the borrower. However, if the borrower cannot repay the loan instalments on time, the co-signer takes responsibility for repayment.

2. Ownership

When you apply for a joint home loan with a co-applicant, you receive the loan together. However, if you have a co-signer, you will be the sole recipient of the loan.

3. Eligibility Criteria

The basic eligibility criteria for a home loan are the same in both cases. However, for co-borrowers, every applicant’s credit score and financial status are equally important. Meanwhile, if you have a co-signer, the lender is more likely to focus more on the financial condition of the co-signer. This is because the co-signer takes responsibility for default payments. Lenders favour co-signer with great credit scores and stable financial status.

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Benefits of Having a Co-applicant or Co-signer

  • Higher Chance of Loan Approval: One of the biggest determining factors of loan approval is the borrower’s credit score. The lender may reject the loan application if the home loan applicant has a low credit score. However, applying for a home loan with a co-applicant or co-signer having a high credit score of over 670 increases the chances of approval. 
  • Better Interest Rates: Generally, home loan rates can range from 7.5% to 13% or above, depending on the applicant’s financial status. Applying for a joint home loan with a co-applicant is better than individual home loans. In addition, home loans provide additional concessions for female applicants. Therefore, if the main applicant is a male, keeping a female co-applicant can reduce the interest rate by at least 0.5%.
  • Greater Tax Benefits: As it is, home loans can offer tax benefits of up to 2 lakhs. In the case of joint home loans, each co-borrower is eligible to claim tax deductions separately. Therefore, you can save up to 4 lakhs or more with joint home loans.
  • Flexible Loan Tenure: In joint home loans, the responsibility of repayment is divided among the co-borrowers equally, decreasing the risk of defaulted payments. Therefore, lenders provide greater flexibility on loan tenures in joint home loans. You can calculate how much each co-borrower has to pay with a home loan emi calculator.

Who Can Be a Co-applicant or Co-signer?

Any person above the age of 18 can be a co-applicant or co-signer. However, lenders are often reluctant to accept co-applicants or co-signers over 60 years. There are no specific restrictions on who can be a co-applicant or co-signer. Some of the people who can be a co-applicant or co-signer are:

  • Spouse
  • Family members (Parents, siblings or any other relation)
  • Business partner (suitable as co-signer)

Co-borrowing or co-signing for a home loan comes with major benefits such as great home loan rates and tax benefits. Moreover, lenders highly prefer home loan applications with a co-applicant or co-signer. Therefore, if you are considering applying for a joint or a co-signed home loan, do not hesitate.

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