Co-Signer vs. Co-Maker

When applying for a bank loan, what is the difference between a co-signer and a co-maker? If a relative asks you to co-sign or co-make a loan, should you?

Co-Signer (AKA Co-Guarantor)

A loan co-signer/co-guarantor is someone who (in theory) does NOT benefit from the proceeds of the loan but is liable should the principal borrower default. An example of this is parents who become co-signers to their son's home loan because he does not qualify for a loan due to low income. Only the son and his wife will be named in the property's title.

Co-Maker (AKA Co-Borrower)

On the other hand, a loan co-maker/co-borrower is someone who (in theory) benefits from the proceeds of the loan and is equally liable to other co-makers. An example of this is siblings who jointly purchase a beach house for everyone's use. All siblings will be named in the property's title.

Q: What is the extent of a co-signer’s liability in relation to the loan that was co-signed?

He assumes responsibility for the repayment of the loan, including the amortization. By practice, banks will only chase after the co-signer after the principal borrower misses several payments. Assuming the principal borrower can no longer make any payments, the bank MAY file a legal claim against a co-signer, but usually, they will simply foreclose the collateral. Banks would rarely chase after the personal assets of the co-signer.

However, if the co-signer has collateral with the same bank for other loans (separate and distinct from the loan to which he became a co-signer), the bank may require the co-signer to update/rectify the defaulted loan (where he was a co-signer) for the release of any other collateralized property.

Q: Should the co-signer put up collateral or bond?

A: Banks may ask for collateral (or additional) from the co-signer.

Q: What should a co-signer prepare for the whole loan process?

A: The banks would conduct the same credit investigation as if they were borrowing money themselves.

Q: Who can co-sign?

A: By practice, most local banks would only allow the parents of a person to become a co-signer. Banks usually wouldn't allow siblings or business partners to become co-signers because these people would likely prioritize paying their own loans over those they co-signed for.