What’s The Difference Between A Loan Cosigner And A Guarantor?

Some financial terms are so similar that they end up being used interchangeably. But that doesn’t mean they’re the exact same thing. One especially common mix-up: the difference between cosigners and guarantors, who are both people who can help you get a loan if your individual financial history isn’t strong enough.

Let’s break it down: a cosigner agrees to be responsible for a loan if the primary borrower has trouble paying it back. It’s typical for people with young credit histories or those repairing their credit to need a cosigner for a loan. For instance, a student taking out private loans for education is likely to need a cosigner since they don’t have a long employment and financial history.

A cosigner is different from a co-borrower. The latter is used if two people want to own something together, like a car or home, Bankrate explains. If you have a cosigner, it doesn’t mean that person has the right to drive your car whenever they want. It just means you’re both responsible for paying for it.

What about guarantors? Those come into play in similar situations where the original applicant doesn’t have a strong enough credit history to get a loan or an apartment lease on their own. But the guarantor is more like a backup plan than a cosigner is.

“The difference is the liability,” said Michael Foguth, founder of Foguth Financial Group. “The cosigner, simply by signing on to the debt, is liable for the debt without the creditor needing to to take any additional actions. The guarantor is only liable for the debt after the creditor has exhausted all other options of collections from the original borrower.”

It may feel intimidating to hear you need a cosigner for a loan, but if you have someone willing to sign with you, it actually gives you more flexibility than if you’re asked to select a guarantor. As Nolo explains it, if the borrower is having a hard time making payments, the cosigner could step in for a while to help. By the time a guarantor gets called in, however, it means the loan is already in a bad place.

If you need a cosigner or guarantor for a loan, you’ll want to choose someone with a healthy credit profile to provide your backup. If you’re asked to cosign or guarantee for someone, you should both feel confident the borrower will be able to pay, and also be willing to take over payments if they cannot. The loan you’re helping with will appear on your credit report, so it behooves you to encourage the borrower to stay on top of their payments.