What is The Difference Between Being a Guarantor, a Co-Signer, and an Authorised User?
When someone takes out a loan, in some instances the lender may require as a course of approving the loan that the borrower has a guarantor or a co-signer.
The lender requiring a second person to be on the loan can be for a variety of reasons, the borrower may have weak or bad credit, they may have no credit, or there may be an affordability issue.
In the instance of there being an affordability issue, such as with a mortgage loan, which are large loans which can be difficult for just one person to afford, the lender may require a spouse or partner to also be on the loan.
Having two people on the loan, with two incomes, makes the loan more affordable.
In looking at the differences between a guarantor, a co-signers, and an authorised user, you will note many similarities between guarantors and co-signers. However, there are some slight differences.
In the majority of instances the reason a lender will ask for a guarantor or a co-signer is to reduce their risk on the loan.
A co-signer is someone who usually knows the borrower, and may be living with the borrower. So in some instances the co-signers may be someone who also benefits from the loan.
An example of this may be a couple who are purchasing and financing a car together, or a mortgage to buy a property.
Both parties are equally responsible for the loan, so if one party does not make the payments, the other party the co-signer, is just as liable. And the lender can and will seek out payments from the co-signer.
The equal liability means that the loan can be reported on both parties credit files, which means if one person is supposed to pay the payments and fails to, the arrears and default will be shown on both person’s credit file.
Being a guarantor on a loan is similar to being a co-signer, however in many instances the guarantor is not benefiting from the loan.
A guarantor may be a friend or family member, someone who knows the borrower and feels they will repay the loan.
A guarantor is usually not contacted or involved in the loan, unlike a co-signer, unless the loan goes into arrears or is not paid as agreed. The the lender will expect the guarantor to pay the payments until the borrower begins paying them again.
Being a co-signer or a guarantor can have an impact on your credit files/history, as if the loan does go into arrears or is in default, it can be reported as such on the borrower’s credit history and the co-signer’s or guarantors.
Does this mean you should not co-sign or guarantee a loan for someone, no, but you need to be aware of the repercussions.
Being an authorised user on an account is a very different term and part of an account than being a co-signer or guarantor.
An authorised user has access to the account, usually a credit card, but it may be an overdraft or some other form of line of credit.
The authorised user has access to the credit and can use the credit, but is not responsible in any way for the payments.
The account holder has allowed this person access to their credit line(s), with out the liability or responsibility of making payments.
This can be a risky thing for the account holder as they are liable for any charges or purchases made by the authorised user.
As you can see, authorised users aside, the differences between being a guarantor and a co-signer are slight and subtle.