What is difference between a Co-owner and Co-borrower?
Co-owners and Co-borrowers are two terms that are often interchanged in context of home loans. However, both these terms are interrelated but are not interchangeable. To know the difference between the two, one must first understand these terms and their relation with home loan.
To build a fixed asset, a home Loan is required. Home loans are also important to reduce income tax liability of the borrowers. Tax rebates under section 80C and Section 24 of the Income Tax Regulations are allowed to the borrower. Thus, home loan makes it easier as well as cheaper to build fixed assets.
A joint home loan comes with dual benefit. Firstly, it increases the overall loan eligibility and secondly, the income tax rebate that can be claimed under Section 80C and Section 24 by the co-applicants also increases. It is imperative that the co-applicants of the loan should also co-own the underlying residential property to claim tax rebates.
There can be a minimum of two and a maximum of six applicants in a joint home loan. A joint home loan cannot be taken with just any person. The relationship between co-applicants are generally defined by the lender of such loans. Generally, joint home loans among friends or unmarried couples who are living together are not allowed.
Difference between Co-owner and Co-borrower
The major difference between co-owner and co-borrower is that the co-owner is always a co-borrower in case of joint home loan. However, a co-borrower need not compulsorily be a co-owner of the property.
A co-borrower is eligible for tax benefits under income tax laws only if he is also that co-owner of the property.
Co-owner cannot be minor
A person who has a legal share in the property is a co-owner. Co-owner cannot be minors or persons who are not eligible to enter into contracts as per Indian law.
Rights, Liabilities and Advantages
A co-owner is a joint owner of the property. The co-owner must be a co-applicant of the loan. The liabilities of the co-owner is same as the liabilities of co-borrower. The co-owner is entitled to tax benefits allowed under section 80C and section 24 of the Income Tax Act and Regulations.
Co-borrower
A person who shares the responsibility of the repayment of the loan is co-borrower. The Co-borrower is actually deemed to have borrowed the loan along with the main borrower. In most cases, the co-borrower and co-applicant are the same person and these terms can be used interchangeably. A co-borrower or cosigner takes responsibility only for the debt, but not for the ownership of property.
Rights, Liabilities and Advantages
A co-borrower gives guarantee of the debt. In case of death or inability to repay of the main borrower, he is liable to repay the share of the main borrower. A co-borrower is entitled to tax rebates under income tax regulations only if he is also a co-owner of the property. A co-borrower is equally liable for repayment of loan as the main borrower.
A co-borrower is of critical importance where an applicant is unable to meet the lending criteria of the lender. Where no credit background of the applicant is available or where the applicant has poor income or bad repayment record, the lender may grant loan if the co-borrower is of sound credit background and income. The total amount of loan to be raised can also be increased.
