Partners in a transaction will use co-applicant status to share the responsibility of a loan as well as the benefits of ownership for the product purchased with the loan. Co-applicants legally agree to share the property and the responsibility for repayment of the loan. A co-signer, while ultimately liable for the loan amount, typically does not share in the ownership of the property.
A number of institutions offer co-applicant status to authorized users on a line of credit. While authorized users do not carry any final responsibility for repayment of the loan, co-applicants are vetted by the loan originator and have full access to all information regarding the loan, its payment history, origination and repayment details.
The difference in co-applicant and co-signer is often a matter of semantics and can be found in the small print of a contract. Both a co-signer and co-applicant are responsible for repayment of a loan. Both are scrutinized and checked for credit worthiness. Both applicants on a loan should be covered with insurance in case of death or inability to repay their portion of the loan.
Since the terms are so often interchanged, a primary applicant that requires a co-signer to act as a co-applicant to receive a loan often believes that repayment of the loan will better the credit score of the main applicant. It usually does not, as the co-applicant is ultimately responsible for repayment. Co-applicants put their own credit eligibility in danger if the loan in not repaid on a timely basis. The loan is counted on the co-signer's credit history.
A co-applicant's income and financial status are added together with the primary applicant to provide the basis for qualifying for a loan. For instance, while a marriage contract already provides co-ownership of a home, one applicant can sign the loan and the property is still shared. But if one person cannot meet the requirements for a loan, the co-applicant, or spouse in this case, can add his income and secure the loan with the total amount.
Each co-applicant is wholly responsible for the loan if the partner defaults, dies or otherwise refuses to participate in the partnership. A bank or other loan provider can pursue collection from one applicant without consideration of the partnership agreement.