What Is a Co-Applicant? Definition, Example, Vs. Co-Signer

A co-applicant is an additional person considered in the underwriting and approval of a loan or other type of application. Applying for a loan with a co-applicant can help to improve the chances of loan approval and also provide for more favorable loan terms. A co-applicant may become a co-borrower once the application is approved and funded.

Co-Applicants vs. Co-Signers

A co-applicant is an additional applicant involved in the loan underwriting and approval process for a single loan. In some cases, a co-applicant may be considered secondary to a primary applicant.

A co-applicant differs from a co-signer or guarantor in terms of the rights associated with the loan. A co-signer may be used to help a primary applicant receive more favorable loan terms. However, they are generally not given access to the funds or associated with the collateral involved. Thus, a co-signer only serves as a secondary source of payment in support of the borrower. Meanwhile, co-applicants share in the transaction itself.

Applying With a Co-Applicant

There are several reasons that a borrower might choose to apply with a co-applicant. A co-applicant may be a family member or friend willing to help the borrower obtain funds for a loan consolidation or vehicle purchase. In many cases, a mortgage loan will include co-applicants who plan to purchase a home together. A commercial loan can also include co-applicants who are cooperatively involved in financing or a real estate deal.

Typically, a standard credit application is required for both borrowers when applying with a co-applicant. The underwriter will review the credit scores and credit profiles of both applicants in their approval decision. Your credit score represents your own personal credit rating based on your credit history, that reflects your creditworthiness.

Benefits of a Co-applicant

Typically, the loan or credit terms will be based on the credit information of the highest quality borrower. At the very least, having a co-applicant with a high credit score and a long, positive credit history can lead to more favorable lending terms for the second applicant or borrower.

A borrower with good credit can help an applicant with poor credit or no credit history get approved for a loan. Having a co-applicant with a strong credit history can also lower the loan's interest rate and help a borrower get approved for a higher loan amount—called the principal. For those looking to buy a home, a co-applicant with a high credit score can help a borrower afford a home with a higher value, provided they have the income to make the payments.

Co-Applicant Example

Let's say a married couple co-apply for a mortgage loan. Both applicants have excellent credit and are approved for a loan principal that is nearly twice the amount they would have obtained on their own. The co-applicants get approved for the mortgage, and they purchase the home. In return, the applicants must repay the loan principal plus interest. After the loan has been paid off, both applicants will be named on the title of the house.

The Bottom Line

A co-applicant can increase your chances of credit approval with more favorable loan terms, such as a lower interest rate and higher loan amount. If you need to improve your loan approval odds, a co-signer with a good credit history may suffice.