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What is a Co-Applicant?
When you want to apply for a loan, you should make sure that you do everything right and meet all the requirements so the application is successful. But in some cases, you may not be able to apply by yourself, or you may simply be worried that your low credit score will get in the way of obtaining your dream house or car.
Luckily, there is something known as a co-applicant that can make a positive outcome more likely to happen. What is the co-applicant meaning, though? This post will go in-depth about co-applicants and tell you when you should apply with one.
Co-applicants are people that participate in the loan application process alongside the main applicant. They will be considered equally as the applicant, though. They will also matter when it comes to approval, so things like their credit history can positively or negatively impact the loan and its interest rate.
But most of the time, applying with a co-applicant is convenient because they are an additional person who adds their assets and income into the mix.
Whether the loan is accepted by the lender or not will depend on the income, finances, and credit profile of the co-applicant. In case the application is approved and the borrower gets the loan, a co-applicant will pretty much become the co-borrower when the loan gets paid.
Although they are equal to the applicant during the process of a loan application, they may also be considered a secondary applicant. Co-applicants are usually the main applicant’s spouse, friend, guardian, or parent. Therefore, many people apply for mortgages with a co-applicant, so both them and their spouse can be part of the process.
Not only can a co-applicant help improve the interest rate of the loan, but they may also help increase the amount received.
What the Process Involves
Applying for a loan with a co-applicant is no different from applying by yourself. You will first have to complete a loan application and fill it with your personal information. Afterward, the co-applicant will have to do the same thing. In the end, you will both have to offer your signature on the application.
The lender will do some credit checks on both of you when reviewing your application. Different things will be considered from each person such as their income, financial history, and other things.
People very often mistake co-applicants for co-signers and vice-versa. While they are similar, the procedures are different and the persons involved have different responsibilities and rights.
Co-Applicant vs. Co-Signer
Co-signers and co-applicants have similar roles. They are both there during the application process with the main applicant of the loan. Co-applicants have more rights than co-signers, though.
For instance, co-applicants may have a good credit history or a bad one, as well as assets. They apply for the loan alongside the main applicant and they also benefit from the loan in the same way. Conversely, they share the same responsibility for paying back the loan. For the lender, approving a loan that involves a co-applicant is less risky as there is more than one resource contributing to the loan.
Meanwhile, a co-signer generally has a good credit history, but also enough assets and income to help deal with the loan for the main applicant. They can be of great help to the primary borrower thanks to their positive credit history.
Unlike co-applicants, they do not share the same responsibility of repaying the loan. Instead, they agree to repay the loan in case the main borrower is unable to do so. On top of that, a lender will be at a lower risk of losing the money because the co-signer will become responsible for the loan when the borrower cannot pay it anymore.
While a co-applicant joins the process knowing that they will also have to contribute with loan repayments, co-signers join to boost the approval chances for the applicant. This is especially true when an applicant’s credit history is bad or insufficient.
Meanwhile, the co-signer only agrees to become responsible if the borrower can’t pay their debt.
Why Apply with a Co-Applicant
People choose to apply for a loan with a co-applicant for many reasons. For instance, in some cases, they may decide to apply for a mortgage loan, in which case spouses get involved as co-applicants to help buy a house together.
People may also want to buy a vehicle or get a loan consolidation – in this case, a co-applicant might be a good friend or a family member determined to help the main applicant achieve their goals.
Co-applicants may also help with a commercial loan when they are involved in a real estate deal or financing.
On top of that, there are benefits of getting a co-applicant to apply with you for a loan. First of all, it may increase the loan amount. Since there are two people with two incomes contributing with payments to the loan, you may be able to obtain a higher amount, which could be beneficial if you are in urgent need of money.
Secondly, applying with a co-applicant will increase the approval odds. After all, there is another person applying with you, with another income, more assets, and possibly a better credit history than yours. Of course, the lender will see this and consider the matter less risky for themselves, so they will be more willing to lend you the money.
Lastly, getting a co-applicant can also help you get lower loan rates. This is especially true if the co-applicant’s credit is great. Your rates will be lower and the loan terms will also be better.
How to Apply for a Loan with a Co-Applicant
Do you want to apply for a loan with a co-applicant? Well, if that’s the case, you will be happy to know that the process is quite easy. All you have to do is complete the application the same way you would if you applied without the co-applicant.
You also have to write the name of the co-applicant in and then write them as “co-applicant” on the application. On top of that, it’s important to list some personal information about the co-applicant.
The financial history, credit score, assets, income, and other things will be reviewed by the lender to find out if the deal is a convenient one for both parties. The terms of the loan will be decided based on the better credit history. This increases the chances of obtaining the loan but also the chances of getting a better interest rate.
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Co-applicants are great to have, and if you think that your chances of obtaining a loan are very low, you can go this route. They can increase the odds of approval, ensure a higher loan amount and perhaps help you obtain better rates.
Co-applicants are often confused with co-signers, and while they are similar, they have different responsibilities. It is important to know the differences between them before you jump in.
A co-applicant will help share the responsibilities and it may be more convenient if you cannot pay for a loan by yourself. Don’t hesitate to get one if you are in need!