Distinguishing Between Co-Applicants and Co-Borrowers in Loan Agreements

Co-Borrowers and Co-Applicants: Understanding the Risks and Responsibilities

Key Figures:

• 85% of home loan applications involve co-borrowers or co-applicants
• 65% of borrowers add a co-applicant to increase loan eligibility
• 60% of co-applicants end up sharing repayment responsibility

Co-Borrowers:

Read also: Correcting Credit Score Errors: A Guide to Ensuring Accurate CIBIL Reports and Optimal Loan Eligibility

A co-borrower is a person who borrows money along with the primary borrower. Both borrowers are equally responsible for repaying the loan, and the lender can recover the money from either person if EMI payments stop.

Co-Applicants:

A co-applicant is a person who applies for a loan with the primary borrower. While the term is often used to describe someone who is not fully responsible for the loan, in practice, co-applicants often end up sharing repayment responsibility.

Why Add a Co-Applicant?

Read also: Missing a Single EMI Payment Can Adversely Impact Credit Profile

Borrowers add a co-applicant to increase loan eligibility, strengthen credit, and claim tax benefits. However, this also increases the borrower's financial commitment.

Understanding the Risks:

Before agreeing to be a co-applicant or co-borrower, it is essential to understand the loan agreement and the level of responsibility involved. Borrowers should ask themselves:

• What happens if the EMIs stop?
• Am I jointly responsible for repaying the loan?
• What are the implications of being a co-applicant or co-borrower?

Best Practice:

Read the loan agreement carefully and understand the level of responsibility involved before agreeing to be a co-applicant or co-borrower. Do not focus on the label used by the bank, but rather the liability mentioned in the loan documents.