You can borrow money with a friend, relative, or partner by getting a joint loan (or shared loan).
While auto loans and mortgages are often joint loans, you can also apply for a joint personal loan. Standard personal loans can be a good option for borrowers with low credit scores and income. You may be eligible for better terms by adding a co-borrower, such as a lower annual percentage rate or a higher loan.
What is the process of joint loans?
A joint loan is a great way to finance large purchases such as a car or home improvement costs. You may be able to borrow more money together than you would by borrowing it all on your own. However, a joint loan should be considered carefully. You will have to repay the entire amount and not just one half.
What are the benefits of a joint loan?
Consumers may be eligible for joint credit, despite each person having their reasons. Sometimes, a typical application for a loan may be able to help you get financing when you aren’t eligible. Standard personal loans can be a good option for couples with bad credit or when the incomes of both parties are higher.
Your child may be able to build credit by borrowing jointly. A joint loan application with someone with a high credit score may help you get lower interest rates and better terms. Parents may also apply for standard personal loans together with their children.
Co-borrowing comes with some risks, so it is worth looking at other options. It’s better to be independent if you can qualify for a loan with no credit history or income from your spouse. To help your child establish credit, you might consider adding them as an authorized user on your credit card.
What does a joint loan do to my credit score?
Depending on the credit reporting policy of the lender, co-borrowing with someone can result in the account appearing on both your credit reports and the credit reports of your co-borrower. Any loan that appears on your credit reports could harm your credit score, good or bad.
A joint loan affects your credit scores, largely dependent on how it appears on your credit reports. Late payments on joint accounts can cause credit score damage — possibly even fatal. However, a well-managed joint mortgage can help improve your credit score over time.
can I use my spouse’s salary to obtain a personal loan?
Yes, You can use your spouse’s income for a personal loan, but they must be listed as joint applicants. Your income is the only thing that can be considered for a personal loan.
There are advantages and disadvantages to listing your spouse as a co-applicant on a personal loan application. Before adding your spouse to your unique loan application, consider the pros and cons.
Which types of loans are allowed to be combined?
You can take out different types of debt and loans together. There are secured loans like a mortgage and unsecured loans like a personal loans. A joint bank account can be opened with an overdraft arrangement.
Credit cards cannot be combined. The primary cardholder is responsible for the payment of the credit card. Although you can add another cardholder to the credit card, they will not be legally responsible for making payments.
The pros and cons of Joint loans
Before taking out a loan, it is essential to weigh the pros and cons of each loan.
Benefits of joint borrowing
- You have a greater chance of being approved or securing a better deal. The right co-borrower can make the difference if you have poor credit or a high debt-to-income ratio.
- You may be eligible for a higher loan amount. Your income and credit history can limit your borrowing ability, even if you have excellent credit. You might be eligible to borrow more money if you add a joint applicant with a separate income to your loan request.
- Credit repair and building. A well-managed joint account can help you build and maintain your credit score.
Cons of joint borrowing
- Possibility to be fully responsible for the entire debt. You are fully responsible for the debt if you take out a joint loan. The lender will expect you to pay the loan even if your co-borrower is unable or unwilling to pay. It can be challenging to manage joint debts if you divorce or get separated.
- A joint loan could cause credit scores to drop if you are late on your payments.
- It may be challenging to get financing. The amount you owe on a new joint loan can increase, increasing your debt-to-income ratio. Although the new account may positively impact your credit score, it could also affect your borrowing capacity for future loans.
Things to Consider
These are the main points to remember before taking out a joint loan.
Your monthly loan repayments will need to be paid.
You must be able to afford the loan’s monthly repayment, even if your financial situation changes. This should be factored into your budget.
Your credit score and ability to borrow in the future can be affected by missed loan repayments. Your home may be taken away if you cannot pay your mortgage payments.
The loan will be repaid in full.
The loan amount will be due back to both you and your partner. You are both responsible for the repayments, even if your partner has spent the money or owns the items purchased with the loan. If one partner cannot pay the loan amount, they will have to make sure the payments are made.
After a separation, loan repayments must still be made.
It can be hard to end a relationship, and it could harm your finances. After a divorce, you will still have to repay any joint loans (including mortgages), but it is worth notifying your bank.
A partner’s poor credit history can affect yours.
Suppose you want to borrow money in the future. In that case, the lender can consider the other person’s credit history. Your credit history and joint debt will be linked if you have a joint loan.
It is a brilliant idea to review your credit history before applying. Ask your partner to do it as well.
There might be fees.
Make sure that you both understand the terms and conditions of your loan before taking out a joint loan.
What is the difference between a joint and a co-signing loan?
Co-sign loans, and joint loans are very similar. They involve two people in one application. It’s easy to confuse them. Here’s how to tell the difference.
A co-borrower:
- Their name appears on the title or loan agreement.
- Makes payments towards the loan.
- Is equally responsible for loan repayment.
A co-signer:
- They lend their good credit.
- Does not have the right to borrow money.
- You must repay the loan if possible.
You can qualify for loans with either joint or co-signing. However, co-borrowers are more likely to own and invest in the loan.
If you and your co-borrower get approved for a $50,000 personal loan, you each have access to the funds but are responsible for the monthly payments. On the other hand, a co-signer would only be responsible for the monthly payments if you default in repaying this loan.
Individual loan lenders who offer joint borrowing
Several online lenders will accept a joint personal loan. These are some lenders you should look at:
- LendingClub: Select the “Two of Us” option when checking your rate to indicate that you are interested in exploring joint loans. You will need to give information about yourself and your co-borrower to get started.
- SoFi: SoFi offers a personal loan for joint-borrowers. It can take up to two weeks to process loan applications with a co-applicant.
- Prosper: To be eligible for a personal loan, borrowers must have a credit score of at least 640. If you do not meet the requirements, you can still apply for a loan with a co-borrower.
How to obtain a joint loan
If both of you are members, you can apply for a joint personal loan through online lenders, banks, or credit unions. These are the steps you need to take to get a joint loan.
- Be sure to check eligibility requirements. Pay attention to the lender’s needs regarding credit score and debt/income ratio. LendingClub, for example, requires that the primary borrower has a better credit score and that there be a lower debt-to-income ratio than the secondary borrower. Like regular unsecured personal loans, lenders also consider your income and credit history.
- You and your co-borrower can both pre-qualify – check your estimated rate before committing to a loan- with most lenders online and some banks. Multiple lenders can pre-qualify. Pre-qualifying will not impact your credit score.
- Compare lenders before you apply. Compare lenders and apply.
- How to apply for the loan. Lenders may request contact information and financial documentation when applying for a loan. After you have selected the best deal, you can add a co-borrower to your loan application.
After confirming the application details, lenders will perform a hard credit check. This will temporarily lower your credit score. After approval, you and the lender must agree to the loan agreement.
