The Ultimate Personal Loan Guide Chapter Five - Joint Personal Loans

Are you considering a joint loan, but you’re a bit nervous about taking on such a big financial commitment? Before you sign anything, make sure you understand exactly what you’re agreeing to. Find out how joint personal loans work, with Personal Loans Now.

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Learning Highlights
  • Joint personal loan applications and relationships of applicants
  • How to obtain credit records
  • Borrowing limits for joint loan applicants and liability for joint personal loans

Most people are fully aware that they can apply for a joint mortgage, a joint bank account and joint credit card. However, many don’t know that they can also apply for a joint loan.

How Do Joint Loan Applications Work?

If you get a loan with another person you share the responsibility and cost of making the loan repayments, and you can both spend the money you get. When signing a contract for credit, the agreement is binding. Both parties are agreeing to pay off the whole amount known as ‘joint and several liability’. So, it is irrelevant who actually spends the money. Either applicant will be liable for the full amount of debt should there be any problem with repayments.

One of the advantages of taking out a joint loan is that you may be able to borrow a higher amount than if you took out a loan in just one name. However, it is important to understand that if you do take out an unsecured loan for poor credit in joint names, you will be responsible for all of the debt if your partner or the joint applicant cannot or will not make the designated repayments in full and on time.

Understanding Joint Personal Loans

Most of the high street banks and major lenders will take applications for joint loans. You can usually apply for a joint loan online, and some lenders will accept people with a bad credit record. However, lenders might only allow borrowing for existing customers, and there could be limits on the amount that can be borrowed.

Use one of the many comparative money advice websites to find a good deal for your joint personal loan. As long as both applicants have a good credit record, there are currently some good deals available.

As with single loans, on joint loans, the term will vary. Typically, joint personal loans can run from between one and seven years.

Joint Personal Loans Advice

Remember that making a commitment with another person is always risky no matter how well you may think you know them. Take advice from reputable bodies such as debt charities and the Citizens Advice Bureau before entering into a contract which may affect your future for many years.

Lenders consider loan applications using many criteria but not the relationship of joint applicants. You can be married, in a civil partnership, living together or just two friends. What matters is your credit status, employment status, residential status, income and any debts you already own.
Most lenders offer joint loans from £1,000 up to £25,000. Lenders assess borrowing limits by working out the ‘debt to income ratio’. This calculation allows a lender to measure the applicants ability to pay for the joint loan and it is worked out as a percentage amount. If you can work out your debt to income ratio, you will have a good idea on how much you may be able to borrow for joint personal loans. Debt, in this sense, includes all monthly bills for household spending as well as mortgage repayments or rent.
You can get an estimate of your debt to income ratio by adding up all the outgoings you make each month and then dividing this by your income and multiplying by 100. e.g. Monthly outgoings £1,300 and monthly income £2,350 means that your debt to income ratio is 55%.

In the UK, banks will not grant you a mortgage that takes up more than 45% of your income. For joint personal finance, the normal approved debt to income ratio is usually 30%.

Liability For A Joint Personal Loan

As already stated, if one applicant fails to make repayments on a joint loan the other applicant is fully liable for paying off the whole amount of the loan. It is irrelevant whether the other party dies suddenly, runs away or otherwise refuses to make their part of the payments. The lender will come to you to make repayment in full. This is why taking out a joint loan should be considered very carefully. You do not want to end up with a lot of unpaid debt.

Sadly, whether you have agreed in writing to each be responsible for your own part of the loan, the lender will still come after you for the full amount if there is any default on the part of the other applicant. Joint loans are not like joint bank accounts which can be set up so that each person has to agree with before spending. As far as the bank is concerned, someone needs pay off the debt by the agreement.

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Joint Personal Loans and Your Credit Rating

While making a joint application for personal finance might increase your chances of obtaining credit, this will only apply if both applicants have a good credit rating. As soon as you apply and the banks approve you for a joint personal loan, your credit file is linked to that of the other person. This can affect your chances of applying for a loan or mortgage in the future. For example, if the other person goes on to develop a bad record for repaying debt.

Before you submit any application for a joint loan, it is always a good idea to check your current credit rating. So, before you and a friend consider applying for a loan, contact one of the three main credit reference agencies and find out exactly what facts are already held about your credit rating.

How to Check My Credit Score

The three main credit rating agencies in the UK are Experian, Equifax and CallCredit. A credit report will show a list of your bank accounts, credit cards, any outstanding loans and any missed payments to utility companies.

Missed or late payments are entered onto your credit report and stay there for six years. Similarly, if you have a county court judgement for unpaid debt, been made bankrupt or entered into an Individual Voluntary Agreement, these facts will also show up on a credit record.

If you are applying for a joint loan for bad credit, the lender will check both you and your partner’s credit records. By finding out in advance what your record says you can avoid rejection of an application. A rejection will only make your credit score worse.

Joint Personal Loans - Personal Loans Now

By law, the credit rating agencies must provide a credit report for £2 only. You can access the report online or in written form. This statutory form of the report shows your current record in a limited form and does not list your credit score. However, a full report will cost more money but may be worth paying for. In fact, getting a report from each of the agencies can be a good idea as it allows you to compare all the information held and if necessary, you can provide the agencies with corrections.

Multiple Joint Loan Applications

One other important fact to consider when thinking about applying for a joint personal loan is that multiple applications will harm your chances of getting more credit. Lenders view multiple applications as an indication that you are having problems getting credit and this is a flag that they use to screen out what they consider unsuitable or risky applicants. Remember, be careful who your chosen partner is. If you chosen partner has a record of applying for loans, this could harm your chances of being accepted.

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Thinking Ahead About A Joint Personal Loan

It is always difficult to predict what will happen in any relationship. So thinking ahead before you apply for a joint personal loan is a good plan. Joint borrowing is always a risk so before you go ahead and apply for a joint loan, think about how you will be able to afford the loan repayments should the worst scenario happen. Some lenders will take into account your relationship with the other applicant, whilst other lenders don’t. They care only about the criteria set down.

Benefits and Drawbacks of Joint Personal Loans

Pros:

  • Easier to get approved for large loans
  • It’s easier to be accepted for more competitive rates
  • Easier to meet larger repayments

Cons:

  • Joint liability
  • Your credit score becomes linked with the co-applicant
  • Smaller choice of lenders

Summary: Joint Loans

In this chapter, Personal Loans Now discussed the criteria for joint personal loan applicants including debt to income ratios. Furthermore, the liability for joint personal finance is crucial to have in mind before taking one out. Also, a refusal of application affects credit ratings. Next, how to obtain credit records was also discussed. Finally, if not most importantly, think ahead before applying for a joint personal loan to avoid personal and financial mistakes. Read the rest of the guide for more useful information about personal loans UK.

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Apply now for a joint loan from a responsible lender - Personal Loans Now