A borrower is one of the parties participating in a loan transaction. The borrower is the person or entity that makes a request to receive a certain amount in funds from the lender, with the intention of repaying the said amount, which is often referred to as a principal. The incentive for the lender in such a situation is the fact that the borrower usually has to pay more than the original amount issued, in the form of interest. The rate of interest may vary depending on the situation. Borrowers who accept an arrangement that allows them to repay the loan over a longer period of time, usually have to pay a higher amount in interest. The borrower may also be subject to other restrictions, especially if the loan is legally bound.
Sometimes, people or organizations are not able to take out loans alone and need the help of a co-borrower. Co-borrower refers to another party who also holds liability for the loan. Depending on the situation, this may also be referred to as a guarantor, although it must be clear that a guarantor holds a slightly different function. Co-borrowers have an equal responsibility for the repayment of the loan as the main borrower. On the other hand, a guarantor is only held liable if the borrower is unable to repay the lender and the lender decides to take the necessary action to collect the amount owed. Getting a co-borrower can be advantageous in situations where the original borrower is not in the best position to get a loan with a favorable interest rate. He might need the help of a co-borrower in order to improve his rating and be granted a loan with the most favorable conditions possible.
