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For collection purposes, what is the difference between a guarantor and co-borrower?

Answered by: 
Lucy Griffin

Question: 
We have a customer who has applied for a home loan but does not qualify because of her credit history. Her brother has offered to help her by guaranteeing her loan. the loan officer would feel better if he was co-borrower. What are the legal differences between a guarantor and co-borrower when it comes to trying to collect on a debt? and will there be a fair lending problem if we deny this loan because we insist on a co-borrower?
Answer: 

The bank may ask for either a co-borrower or a guarantor. What each brings to the loan is determined by state law. To decide whether you should have a co-borrower instead of a guarantor, you should refer to state law. The most important difference is usually the point at which the lender can turn to the co-borrower or guarantor for payment. In some states, the borrower must be in default before the lender can seek payment from the guarantor whereas the co-borrower can be reached on the same terms as the borrower.

Under Regulation B, you may request either, or you may deny the loan. The fair lending question you should consider is whether the same terms would be imposed on any other applicant with similar qualifications.

First published on BankersOnline.com 3/5/01

First published on 03/05/2001

Filed under: 
Lending
Filed under lending as: 
Fair Lending

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