Loan Co-Applicant: Definition & Examples

Whether you’re trying to get a new mortgage or secure financing for your business, there is always a risk of your loan application being rejected.

2020 was a hard year for most people, but it was a little more painful for the 21% of US consumers who got hit with a credit denial that year. In 2021, the average rejection rate was 20.9%. Having your application rejected isn’t the end of the world, but it’s a notable setback, especially if you are trying to secure a mortgage loan or a credit card. 

There are a few ways you can improve your chances of getting your loan application accepted and obtaining the best interest rates for your financial goals. One of those is to get a co-applicant to join the loan application process. Keep reading to learn more about the co-applicant meaning and the responsibilities and benefits that come with this arrangement. 

Co-Applicant Definition: Let’s Start With the Basics

If you are looking for ways to increase your chances of getting your loan application approved, you should consider applying with a co-applicant. So, what is the meaning of a co-applicant? 

A co-applicant is an additional person involved in the loan application process. Here is a general breakdown of that process:

• Both the applicant and co-applicant need to sign the loan application.
• Lenders run credit checks on both parties.
• The applicant and co-applicant are equally responsible for repaying the loan. 
• Both borrowers benefit equally from the loan amount.

When you are applying for a mortgage, car, or business loan with a co-applicant, the underwriter reviews the credit history, income, and credit score of both parties. This enables the lender to determine the level of risk in granting the loan. 

When two people are applying for the same loan, the lender’s perceived risk is diminished, and a secondary source of payment is provided. This can help your chances of securing a loan and deliver more favorable terms and rates. 

Who Can Be a Co-Applicant? Co-Applicant Examples

Now that you are clear on the meaning of a co-applicant, it is time to look into prospective co-borrowers for your next loan. 

A more common example of a co-applicant is a spouse. However, depending on the type of loan you are after, you can sign a loan application with the following:

• Parents
• Other family members
• Friends
• Business partners
• Partner 
• Guardian 

Whoever you choose to be your co-applicant, keep in mind that the chances of your loan being accepted will depend on the income, finances, and credit profile of both parties. 

Loan Parties and Their Roles

Over 19.4 million Americans have personal loans. But that hasn’t necessarily translated into a higher standard of living. In fact, those under the age of 44 have experienced the biggest dip in homeownership since 2008. Perhaps the silver lining is that many young people have familiarized themselves with the loan application process, which isn’t always easy to navigate given the jargon and the long list of options. 

Now that you have a better understanding of a co-applicant’s role in the whole process,  here is how to distinguish the different parties commonly involved in a loan application and find the best partner for your needs.

Co-Applicant vs. Co-Borrower

The terms “co-applicant” and “co-borrower” are often used interchangeably. This is accurate in that the two terms refer to the same party: the spouse, parent, or business partner who is involved in your loan application. However, there is a distinction to be made. Co-applicants become co-borrowers once the loan application is approved. 

Co-Applicant vs. Co-Signer

Co-applicants are often confused with co-signers - or guarantors. While the two have similar roles, there are some differences that need to be highlighted. Here are some of the characteristics of a co-signer:

• Both the co-applicant and the co-signer are present during the application process.
• Co-signers don’t share the loan responsibility but agree to take on repayments only if the borrower can’t repay them.
• Applies to help the borrower secure a loan but doesn’t benefit from the loan when it’s approved
• Unlike a co-applicant, a co-signer needs to have a good credit score to act as a guarantor for the main borrower.
• A co-signer further reduces the lender’s risk because repayments will be covered even if the borrower isn’t able to pay.

Before deciding whether to use a guarantor or a co-applicant, you should understand the responsibilities and rights of each.

Benefits of a Co-Applicant

Whether you are looking for a co-applicant for a car loan or you simply want to increase your chances of securing a loan approval, there are many benefits to submitting your application with support from another person.

Some of these benefits include:

• Better chances of loan approval: The co-applicant’s assets, income, and credit history are considered alongside the ones of the main borrower, thus reducing the lender’s perceived risk and increasing your chances of getting approved.
• Lower APR: When both you and the co-applicant have strong credit scores, you can qualify for lower annual percentage rates or interest rates, which make it easier to repay the loan principal.
• Higher eligible loan amount: Since two borrowers can afford to pay more than a single applicant, you might be able to secure a greater loan amount.
• Co-borrowers share liability and benefits: In case the financial situation of one of the borrowers deteriorates, the repayments are covered by the co-borrower
• Can help with specific loans: For commercial loans, co-applicants involved in real estate deals or financing can help you qualify.

Do You Need a Co-Applicant?

As we have seen, having a co-applicant for your loan application can increase your chances of getting approved. In some cases, you might co-sign with a person who wants to share the benefit of the loan, such as a spouse with a mortgage loan. 

However, you might also consider signing with a co-applicant if your credit score is suboptimal, which is something that over 11% of American consumers are currently grappling with.

How to Apply for a Loan With a Joint Applicant

Applying for a loan with a co-applicant is similar to an individual loan application, but both parties will need to submit their information, undergo credit checks, and sign the application form. 

The underwriting agency will consider several factors when evaluating the application. These factors include:

• Both incomes
• Financial history
• Credit scores
• Credit history
• Assets
• Income
• Job history