Rebecca Goodman
Connor Campbell
Rhiannon Philps
You may be familiar with one common type of joint loan: a mortgage taken out by two or more people. However, the finance you can access with a friend, family member or partner doesn’t end there. You can also access joint overdrafts, car finance, and unsecured and secured personal loans.
When you take out a joint loan, it’s important to understand that both of you are liable to repay the debt. So if for some reason one person can’t pay it back, or chooses not to, the other will become responsible for repaying the whole amount.
Read on below to find out how joint loans work, who can apply together, and what other eligibility criteria you may need to meet.
At a glance:
- A joint loan is when you borrow money with another person, such as your partner or a family member.
- Both individuals are named on the loan agreement and are jointly responsible for paying back the loan.
- Your credit file will be linked to the other person’s when you take out a joint loan, which could affect your ability to get credit in the future.
How do joint loans work?
A joint loan is a loan jointly applied for, used, and paid back, between a number of people. The arrangement will usually be for two people: this could be a couple, family members, business partners or friends. In the case of mortgages, as many as four people can team up.
When you take out a joint loan you’ll be told how long it will last, how much you need to pay back over time, and the interest rate.
Both people named on the joint loan agreement are responsible for paying off the loan. This means that, if the other individual doesn’t pay, you’ll need to pay the full amount. If not, the missed payments will be recorded on both credit files.
By borrowing with somebody else, you may get a bigger loan than you would when applying on your own. You may also improve your chances of being accepted for a loan. This is because lenders often see joint applications as less risky since they aren’t solely relying on one borrower to repay the debt.
What types of loans can be joint?
There are several different types of loans which can be taken out jointly, including:
Personal loans
A personal loan, also called an unsecured loan, doesn’t require an asset as a security. Instead, you need to pass the lender’s credit checks and meet the specific eligibility criteria. Several lenders that offer individual personal loans also accept joint applications, but not all of them do.
Mortgages
Joint mortgages are arguably the most common form of joint loan. Typically taken out by partners, they can also be used by parents and children, and groups of friends.
Secured loans
While a mortgage itself is a type of secured loan, it is possible to apply for a standard joint secured loan from some lenders. With any form of secured loan, you will need to put up an asset as a security, be that property, a car, or something else of value.
Bank account overdrafts
A joint bank account with an overdraft is another form of joint loan. Both parties are responsible for paying off the overdraft, not just the person who spent the money.
Car finance
If you are looking to get a new vehicle through car finance, some lenders may allow you to do so as a pair. Different car finance providers have different eligibility requirements for submitting a joint application, such as living at the same address or being partners.
Can I get a joint credit card?
You can’t get a joint credit card in the UK. Even though you can add secondary cardholders, there will always be a main cardholder who is named on the agreement and is fully responsible for paying off the account.
Additional cardholders aren’t legally required to make payments.
Who can share a joint loan?
You may be able to take out a joint loan with the following people:
- partner (you don’t need to be married or in a civil partnership)
- family member (this could be a parent, sibling, or cousin, for example)
- friend
- business partner (you may consider taking out a specific business loan)
Taking out a joint loan is not something to do without careful consideration. This is because both people taking out the loan are jointly responsible for paying it back.
Therefore, you need to think about the person you are borrowing with carefully before you sign on the dotted line. The following questions are a good starting point:
- How long have you known them?
- How reliable are they?
- How much do you know about their finances?
- If they lost their job or couldn’t work, what would happen? Do they have savings or other assets they could fall back on?
- Do you trust them?
What is the eligibility criteria for a joint loan?
While the specific requirements will differ depending on the lender, to successfully apply for a joint loan you may need to:
- meet an income threshold
- both be UK residents
- both be over the age of 18
Other criteria sometimes include living at the same address, and one person having a current account with the lender in question.
You will also need to pass the lender’s credit checks. Because both applicants are jointly liable for repaying the debt, the lender will look at both credit histories to see whether you can afford to pay back the debt.
The better your credit history, the better chance you have of securing the loan. The largest loans, and those with the lowest interest rates, are typically reserved for people with the best credit scores, as they are considered least likely to miss repayments or default on the loan.
How does a joint loan affect your credit rating?
When you apply for a joint loan, the lender will run a credit check on both applicants. This will be recorded on both credit files. One application is unlikely to have a significant impact on your credit score, but multiple applications for credit in a short period could affect your score.
If you take out a joint loan with another person, your credit files are also linked. This means that if one or both applicants miss a payment on the joint loan, this will be recorded on both credit files.
Linking your credit file to the other applicants can be a problem if one of you has a poor credit history. This is because if you apply for credit again on your own, lenders will look at both your records, which can influence their decision.
Pros and cons of joint loans
Applying for a joint loan is a big decision and shouldn’t be taken lightly. It is important to weigh up the pros and cons before proceeding.
Pros
- You may be able to get a bigger loan.
- It could improve your chances of getting approved for credit, especially if you have a less-than-perfect credit history.
- You share the cost of repaying the loan.
Cons
- You are both jointly responsible for repaying the loan.
- Your credit files will be linked, which could affect any applications for credit in the future.
- If there is a falling-out and one person stops repaying a loan, the other is still responsible for the debt.
- If you don’t make a payment in full, the missed payment will appear on both credit files.
- With personal loans, one person may spend the money on something that wasn’t agreed with the other person.
- If one person dies, the other still has to repay the full amount.
Can you get out of a joint loan?
It’s usually not possible to get out of a joint loan without repaying it in full, which is why you need to think carefully before taking one out. If, for example, you take out a joint loan with a partner and then split up, you’ll still need to work together to repay it, even though you are no longer in a relationship.
If a partner is refusing to pay, speak to your lender and explain the situation. You will have to make the full payments but there may be some alternatives offered by the lender, depending on the situation.
What happens to a joint loan when someone dies?
Usually, when someone dies, any debts they have outstanding are paid off from their estate, which is the amount of money and assets they own. However, if that outstanding debt is part of a joint loan they have not fully repaid, the other person who took out the loan will become solely responsible for paying off the rest of the loan in full.
How to apply for a joint loan
Although the process will vary from lender to lender, and the type of loan, when applying for a joint loan you will likely need to follow these steps:
- Have an honest, open discussion about your respective finances.
- Decide how much you want to borrow, and for how long.
- Compare lenders, and choose the one that is best for your financial circumstances.
- Fill out the relevant application forms, and submit all the details and documents that the lender requires.
- Wait to hear whether or not your application has been successful.
- If successful, accept or decline the loan offer that has been made.
While some lenders allow you to apply for a joint loan online, some lenders may require you to apply in a branch or over the phone.
» MORE: How to apply for a loan
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