Joint loans

Applying for a joint loan might be a great idea if you’re married or living with friends or family. The loan funds are deposited into a shared account, which both of you can access for shared expenses, whether paying bills or making home improvements. What’s even better, they expand your borrowing options, helping secure the right personal loan for you. Below, you’ll discover all the essential details to help you and your partner-in-loan make the best choice.

What is a joint loan?

A joint loan is a financial arrangement in which two or more people apply for a loan together and agree to share the responsibility of paying it back. If approved, the loan is issued in the names of all borrowers, who are collectively liable for managing and repaying the borrowed funds.

A joint loan lets multiple people combine their resources to possibly borrow more money or get better terms, such as lower interest rates.

However, all co-borrowers face risks like potential disagreements over financial decisions or uneven contributions to the monthly repayments. Before deciding on a joint loan, carefully consider who you’re partnering with and whether both of you are the right fit for this commitment.

Can I apply for a joint loan online?

You can apply for an unsecured joint loan online because these applications involve a more straightforward approval process.

On the other hand, secured joint loans, which require collateral like a home or car, tend to require speaking with an advisor over the phone. This allows for the necessary assessment and verification of the collateral to meet lender requirements and adjust loan terms accordingly.

How do joint loans work?

Once you’ve chosen the right deal, both joint loan applicants submit an application to the lender. Both applicants undergo credit checks to assess their ability to make the monthly loan repayments based on their income and credit history. The lender then decides whether to approve the loan application and sets the interest rate accordingly.

Once approved, the entire loan amount is deposited into the designated bank account, and you start making monthly repayments until the loan is completely paid off.

Importantly, a joint loan doesn’t split responsibility evenly. If one person can’t make the repayments, the other borrower is required to step in and cover the obligations. If payments are missed, it will harm both of your credit ratings.

Keep in mind that there might be an early repayment fee if you decide to settle the loan ahead of schedule, i.e., pay off the loan early. So, factor this in when applying.

What are the types of joint loans?

Just like borrowing individually, you can apply together for various types of loans:

• Secured loans — Secured against property or other assets you own.
• Unsecured loans — Also known as a joint personal loan, these don’t require you to pledge collateral.
• Current account — While not a traditional loan, a joint current account with an overdraft feature allows both holders to access and borrow money from the bank.
• Mortgages — Combine both applicants’ income incomes to borrow more money from the lender.

In the UK, joint credit cards aren’t available. The primary cardholder can issue an additional card to someone else, but they remain solely responsible for repaying any debts incurred on the account.

What are couple loans used for?

Simple joint personal loans for couples can be used to pay for household expenses like home improvements, mortgage payments, debt consolidation, and any everyday costs. You can also use them for weddings, travel, electronics, and more. However, it’s best only to consider them when the loan purpose is worth getting into debt for.

One of the main advantages is that applying together improves your chances of approval, especially if one person has a better credit score than the other. If you’re married or living together, sharing expenses is normal. So, these loans can provide a practical and efficient means of managing your combined finances.

Can my partner act as my guarantor?

Yes, you can request your partner or spouse to become your guarantor. To secure the necessary funds, they should ideally have a steady income and a strong credit history, especially if yours could be better.

Is it better to apply for a loan individually or jointly?

When deciding whether to apply individually or jointly, consider this:

• Individual loan — Simpler loan process, but interest rates may be higher based on your credit score.
• Joint loan — Could qualify for better rates and higher loan amounts, but both applicants share responsibility for repayment.

Ultimately,  it all comes down to how strong your credit is, or if you need your partner's credit to boost your chances of getting better loan terms or a higher loan amount.

Can I get a joint loan with bad credit?

Even if you qualify for a loan, you likely won’t be eligible for the best available interest rates. You might also receive a smaller loan amount than someone with a solid credit score. This happens because lenders see you as a higher risk, so they’ll charge higher interest rates to compensate.

When you apply for a loan together, your credit histories are linked. If one person has a poor credit score, it will indirectly lower the other person’s credit history, which will make your joint loan application journey harder but not impossible.

What are the pros and cons of joint loans?