How Can You Qualify For Joint Personal Loans?
Posted on February 4, 2021 in Loans
Taking out a personal loan, regardless of the amount, is a big responsibility for any individual to undertake. Paying back the loan and its interest can be a difficult task to handle alone. Even more concerningly, recovering from the consequences of defaulting on a personal loan can take a very long time — sometimes years. This is where qualifying for a joint personal loan might be a better option.
What Exactly Is A Joint Personal Loan?
A joint personal loan is pretty much exactly what it sounds like: a personal loan shared evenly by two individuals. Some examples would include business partners taking out a loan to start up their restaurant, or a married couple taking out a loan to purchase a home.
Both parties will have their individual credit scores, income, and credit history assessed, and they will sign the same loan documents. Each person shares equal responsibility for repaying the loan, so there is no such thing as primary or secondary borrowers.
Isn’t That The Same As Co-Signing A Loan?
Sometimes a joint personal loan is mistaken for the concept of co-signing on a loan. A co-signer is a person that agrees to pay back a loan in the event that the primary borrower defaults on the loan or can’t repay for any reason. The co-signer has no claim of ownership on whatever is borrowed or purchased.
For joint personal loans, the co-borrower is included in the loan terms as a borrower and shares equal responsibility for loan repayment with the other signer. A co-signer is more or less used to help qualify a person for a loan because they may have poor or no credit history, such as a parent helping their child get a car loan for their first car. Not many banks would approve a loan to a teenager with no credit history. A parent co-signing gives their child the chance of qualifying for a loan.
What Are The Pros and Cons of A Joint Personal Loan?
There are always advantages and disadvantages when considering options for loans. A joint personal loan is just like any other with some pretty great pros but also some potentially awful cons. Here we can look into both in a little bit more detail:
The Pros Of Joint Personal Loans
- A Higher Combined Income
With two individuals combining their resources and incomes, the chances for getting a larger loan are improved dramatically.
Income is one of the key factors that a lender will look into when reviewing loan applications, so it makes sense that the more income, the higher the ceiling for the loan.
An $80,000 loan taken out by an individual making $75,000 a year may get denied, but if two people take out the loan with a combined income of $150,000 a year, the chances the loan is accepted improve exponentially.
- An Improved Credit Score
Similar to combining income, both parties’ individual credit scores and histories will be taken into account. If one borrower has an excellent credit score, it can help keep the interest rates down and make the monthly payments lower after adding the benefit of allowing the loan be accepted in the first place.
- An Easier Path To Down Payment
Two people can pay a larger down payment than someone trying to fund a loan on their own. With combined funds, the loan is more likely to get approved and will be easier to pay off in the long run.
The Cons Of Joint Personal Loans
- Relationship Strain
When it comes to marriages, the number one issue is almost always financial problems. It is safe to say in business relationships, this is the biggest problem that arises as well. Taking out a loan is a considerable risk for anyone, and the larger the loan, the more the risk involved.
A joint personal loan requires taking a risk and trusting someone else totake the risk with you, and pay back their share. Going in on a loan with someone can put a strain on even the strongest of relationships. Losing money can be devastating, but losing a spouse, loved one, or lifelong friend can be just as bad.
- An Impaired Credit Score
The flip side of having a partner on a loan is that having one borrower having a poor credit score can hurt the other person’s score and lower the loan terms for both. If one of the borrowers has a bad credit history and low credit score, it can cause the interest rate to be higher or even result in the loan being denied.
- Consequences For Defaulting
With joint personal loans it is crucially important that both parties stay in good favor with each other and agree to carry their fair share of the burden. If one party starts to fall behind and not fulfill their part of the agreement, then the other party must pick up the slack before the loan defaults.
Because both parties signed the same legal documents, they will equally be held accountable, even in the cases of borrower’s divorcing or the death of a borrower. Whether both borrowers are involved or not, the consequences of loan default will be shared. This is the case even if repayment responsibilities are not shared.
Applying For A Joint Personal Loan
Applying and qualifying for joint personal loans are pretty similar to applying for an individual personal loan. The first thing is to check the preferred lender and see if joint personal loans are offered and then enter in the required information in order to find out the loan rate that would be offered. When looking for a loan, it is a good idea to shop around and weigh out the available options. There is no benefit to jumping right in and accepting the first offer, and two people involved can cover twice the ground in half of the time.
Once the most suitable loan option is chosen, it is a matter of applying for the loan and hopefully being approved. If this happens, the lender will make a hard credit inquiry on both parties, which can cause the credit score to be lowered temporarily. The final step is selecting what bank account to use for the regular payments. A joint bank account will be the fairest option, but it will ultimately be up to the two individuals to decide.
Joint personal loans can help two people decide to enter into a partnership together and want to expand their financial options. Although joint loans are not entirely devoid of risk, having another person share in the responsibilities of a loan can be very beneficial.
Committing to paying back thousands of dollars after borrowing them can be a long and challenging process to face alone. The more money borrowed, the longer and more expensive it will be to pay back. A joint personal loan helps alleviate some of these issues by splitting the responsibilities right down the middle. A few potential consequences may arise, but the same can be said for taking on a personal loan individually. At the end of the day, if two people trust each other enough and both need money, then a joint personal loan can be a great option to help both parties.
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