How Do Joint Personal Loans Work?
When you apply for a joint loan you share the responsibility and cost of the loan repayments with another person. As with all contracts, once signed the terms are binding, with both parties agreeing to pay off the full amount under joint liability. In short, this means that either applicant is liable for the full amount should there be a problem with the repayments, regardless of who spent the money.
With a joint loan, you may be able to borrow a higher amount than if you were to apply as a single applicant. It is important to note that if you’re taking out an unsecured loan for poor credit because one of you has a less favourable credit rating, one person will still be responsible for all of the debt if the other joint applicant cannot or will not make the designated repayments in full and on time, irrespective of circumstances.
Understanding Joint Loans
Where Can I Apply For A Joint Personal Loan Online?
Most high street banks and major lenders will take applications for joint loans. You can usually apply for a joint personal loan online, and some lenders will accept people with a bad credit record. Lenders might only allow borrowing for existing customers, and there could be limits on the amount that can be borrowed.
Find a deal that suits you both online using a price comparison website. As long as both applicants have a good credit record, there are currently some good deals available.
How Long Is The Term On A Joint Loan?
As with single loans, the term will vary. Typically, joint loans can run from between one and seven years.
Joint Loans Advice
Making a commitment with another person is always a risk, no matter your relationship. 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.
Do I Need To Be Married To Get A Joint Loan?
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.
How Much Can I Borrow When I Apply for a Joint Personal Loan Online?
Most lenders offer joint personal 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 loans. Debt, in this sense, includes all monthly bills for household spending as well as mortgage repayments or rent.
How Do I Calculate My Debt To Income Ratio?
You can get an estimate of your debt to income ratio by following this sum:
All monthly outgoings ÷ your income × 100
e.g. If your monthly outgoings total £1,300 and monthly income is £2,350, 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 average approved debt to income ratio is usually 30%.
Liability For A Joint Loan
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. The lender will come to you for repayment in full, regardless of whether the other party dies suddenly, runs away or otherwise refuses to make their part of the payments. It’s very important, therefore, to carefully consider all options before taking out a joint personal loan; you could end up with double the amount of debt you started with.
What Happens If I Have A Written Agreement With The Other Applicant?
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. As far as the bank is concerned, someone needs to pay off the debt as per the agreement between them and the two of you.
Joint 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 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, this will be reflected on your file too.
Before you submit an application for a joint loan, it is always a good idea to check your current credit rating and ensure the other person does the same. So, before you and a friend apply for a joint personal loan online, 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, have 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.
By law, the credit rating agencies must provide a short-form credit report at no cost. 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. A full report will cost more but could be worth the investment. 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 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, which could deem you an unsuitable applicant. If your chosen partner has a record of applying for loans, this could harm your chances of being accepted.
Thinking Ahead About Joint Personal Loans
It is always difficult to predict what will happen in any relationship. So thinking ahead before you apply for a joint personal loan online is a good plan. Joint borrowing is always a risk so considering the worst-case scenario, while unpleasant, is necessary. 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 Loans
- Easier to get approved for large loans
- Easier to be accepted for more competitive rates
- Easier to meet larger repayments
- Joint liability
- Your credit score becomes linked with the co-applicant
- Smaller choice of lenders
Joint Loans – Personal Loans Now
While looking into joint personal loans, be sure to consider whether you can rely on the other applicant to hold up their end of the agreement. Ensure you have a good credit rating and keep in mind that applying for several loans often is not advisable and may reduce your chances. As a lender and broker, we use one application for several lenders to find you the best deal – if we can’t offer you a loan, we’ll try to find you someone who can. Remember, keeping your finances under control and using tools to help you manage your budget is a lower-risk option than taking out a loan, so only do so if entirely necessary.