Co-signing and co-borrowing have their own pros and cons.
What is joint liability?
Joint liability is the state of two or more people who are equally responsible for paying back a debt. If someone applies for loan, such as a mortgage, with another person, the loan agreement may specify that they are each responsible for the debt. This applies both to co-borrowers, who apply for a debt together, and to cosigners.
A joint liability may occur when multiple people apply for a loan together, such as spouses or business partners. If the debt is listed in everyone’s name, all parties share the obligation for paying it back. If one person is sued for the debt, the other parties can be brought into the lawsuit and face the same financial consequences.
The lender can sue any signatory on the loan or garnish her wages, and the debt could hurt her credit score.
A cosigner, or guarantor, is also jointly responsible for any debt to which their name is attached. When someone cosigns on a loan for another person, she is essentially backing the person’s debt and agrees to pay it if the other person does not. If the borrower defaults on the debt, the cosigner becomes legally responsible for repaying the entire amount, as well as any fees or collection costs.
Some credit cards let more than people be joint account holders on the card. Let Bankrate help you choose a credit card that’s right for you.
Joint liability example
If a married couple obtains a mortgage loan together and both of their names are listed on the loan, this is a joint liability. They’ll both be responsible for repaying the loan, and the debt will be included on both of their credit reports. If they default on the loan, both will face potential financial consequences, as well as having their credit score damaged. Even if they divorce, they are still jointly responsible for the total amount owed on the loan.