Joint application personal loans – How to borrow with someone
It’s possible to share and repay a borrowed lump sum together with someone close to you. But there are pitfalls to avoid and best practices to follow when considering joint application personal loans. Here’s a guide for what you need to know.
What’s a joint personal loan?
A joint personal loan is when two borrowers both use their credentials to apply for finance. If you’re making such an application, the second person you add on there becomes your co-borrower or co-applicant.
Typically, a co-borrower is your partner, sibling, parent, relative, or friend. When you double up with them, they also become responsible for making repayments. That means if the other half of your duo defaults, the person left standing will be liable for the entire debt.
What’s the difference between a joint loan and a guarantor loan?
Going guarantor means there’s a third party who lends weight to your application using their stellar credit score and income. The guarantor can also offer up their asset as collateral to lighten the lender’s risk. They differ from a co-borrower in that they’re only liable for your debt after you default, not from day one.
Usually, they also don’t share any ownership rights to assets purchased with the borrowed funds. Guarantor loans are typically used by young people who need a student loan but have a fledgeling credit rating and financial history.
Another distinction that needs to be made is that of the cosigner role, which is similar to the guarantor role. However, cosigners generally have immediate liability once you default. A guarantor only becomes liable after the lender has done all they can to pull repayments from you.
Why choose a joint application personal loan?
For most Australian borrowers, the decision to mingle credit files is based on various reasons, including:
- You can’t qualify on your own. Inability to meet application requirements will likely tear down your chances of approval. But a co-applicant with better qualifications can help you squeeze through tight lending criteria.
- You’re planning to borrow a larger sum. Lenders are usually wary when signing off on large loan amounts. However, having two people chip in to make repayments is one way of reducing the lender’s risk – and boosting your borrowing capacity.
- You want to share assets and finances with a loved one. This usually applies to couples who’re interested in marrying their finances. In such cases, joint borrowing makes it easier to manage and organise financial responsibilities, goals, and plans. Partners can apply jointly for a mutually beneficial wedding loan, car loan, or holiday loan. Or they can apply for a debt consolidation loan that combines their multiple separate debts into a single account with one repayment.
How to avoid the risks associated with joint personal loans
The decision to apply for a joint personal loan can spawn negative, long-term repercussions if not thought through. It might seem in bad taste, but it’s best to evaluate both your financial situations as honestly as possible before committing. Asking the following questions generally helps you steer clear of common pitfalls during your shared credit journey:
- How reliable is the other person? – It’s always a safer bet if they have a history of paying debts responsibly.
- How much debt do they already have? – If they’re already juggling debt, make sure their budget has enough wriggle room. Otherwise, you’ll have to pick up the slack if they default.
- Do they meet the basic loan criteria? – While a joint application has a higher chance of sailing through, you’ll both have to meet the requirement script for this type of loan.
- What happens if the two of you fall out of good books? – For instance, it’s possible for a couple’s relationship to go topsy turvy while they’re still repaying the combined debt. A plan B such as refinancing might be needed for such a scenario.
Pros of joint loans
- It’s a great way to beef up your application
- You may be able to tap more funds
- It could be cheaper to purchase a shared asset using a shared personal loan
- It might be financially prudent to consolidate both your debts using a single loan
- Making repayments on time bolsters your credit score which is handy for future individual applications
Cons of joint loans
- The whole debt falls into your lap if the other person defaults. If things go further south, both your credit scores will suffer, and one of you might face legal action.
How to make a joint application for a personal loan
The first step to making a personal loan joint application is lining up a suitable financial product that ticks both your boxes. Our product and calculator at the top of this page are handy tools that’ll help you arrive at a decision quicker. Here are a few things you’ll need to key on when comparing joint application personal loans:
- What are the lowest rates and fees available?
- Do you want a secured or unsecured loan?
- Should you choose a variable or fixed rate?
- What features are best for your situation? For instance, look at loan repayment, early repayment and redraw options.
Once you’ve ID’d the best choice, click “Go to Site” to jump straight onto the lender’s website. Remember, although there’s one application, both your details will be needed. You should, therefore, check the creditor’s requirements before you apply for a personal loan.
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Dennis Graham is a seasoned finance professional working within Banking, Lending and Novated Leasing. An expert finance writer, Dennis combines industry insights with clear communication to deliver insights into financial products.
