What Is a Joint Personal Loan and How To Apply
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Summary:
Joint personal loans enable two co-borrowers to apply for a single loan, sharing both the proceeds and the responsibility for repayment. This article provides insights into understanding joint personal loans, the application process, when it’s a good idea to apply, and alternatives to consider.
A joint personal loan allows two individuals, often with a familial or close relationship, to apply for a loan together. Lenders assess the credit and income histories of both applicants to determine approval and loan terms. Read on to explore the concept of joint personal loans, including the application process, factors to consider before applying, and alternatives worth exploring.
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What is a joint personal loan?
A joint personal loan involves two co-borrowers submitting a single loan application. Lenders evaluate the credit and income of both applicants, which could include spouses, family members, or domestic partners.
While you aren’t required to be related to or live with your joint borrower, it may improve your odds of loan approval. A joint borrower can also help you qualify for a better interest rate than if you applied for the loan by yourself, says David Chami, managing partner at Consumer Attorneys.
“Interest rates for personal loans can vary but tend to be higher than secured loans. Bringing on another person and making the loan a “joint loan” can oftentimes lower the interest rate on the loan since there will now be two people guaranteeing repayment of the loan. In order to get a joint personal loan, both people need to be able to qualify for the loan.”
Once the loan is approved, co-borrowers share the loan proceeds and the responsibility for repayment. This means if even one of the borrowers doesn’t pay their share, both people responsible for the loan will face credit and legal consequences. For that reason, it’s important to trust the person you take out the loan with.
Requirements for a joint loan
To apply for a joint personal loan, you’ll need the following:
- Personal information for both applicants
- Employment and income details
- Loan purpose and requested amount
- Relevant documents such as pay stubs and IDs
Pros and cons of joint loans
How to get a joint personal loan
The process of obtaining a joint personal loan involves the following steps:
1. Identify the applicants
Your chances for loan approval go up if you live with or are related to your co-borrower. Married couples, domestic partners, and parent/child co-borrowers tend to be seen as less risky for lenders.
2. Determine the loan’s purpose
It should go without saying that the co-applicants should agree on the purpose of the loan and that it benefits both parties. Examples of good uses for a joint loan include consolidating debts or making home improvements.
Of course, in the case of parent/child borrowers, the purpose of the loan may be for the sole benefit of the child. In that case, a loan with a cosigner is another option to consider.
3. Review credit and income
Because both parties need to meet credit and income requirements, it’s a good idea to review these details before applying for the loan. For example, if either of the borrowers has less-than-stellar credit, it’s not a bad idea to seek ways to boost their credit score prior to filling out the loan application.
4. Compare lender options
Don’t just pick the first lender that offers the loan amount you’re looking for. Shop multiple lenders for the best interest rates and loan terms, and be sure to consider all your options, says Chami.
Consider factors like existing relationships with lenders, interest rates, fees, customer service, and reputation when selecting a joint personal loan. It’s also a smart move to get prequalified with various lenders. Prequalifying involves lenders conducting a soft credit inquiry to provide you with an estimated interest rate.
5. Submit the application
Once you’ve both decided on a lender, you can follow their instructions on how to complete the loan application and submit any required documentation. Depending on the lender you choose, this can be done online, in person, or over the phone.
When does a joint personal loan makes sense?
Joint personal loans can be a good idea if both co-borrowers have positive credit histories and a clear plan for repayment. They’re especially beneficial for shared expenses, such as home renovations or debt consolidation.
When is a joint loan a bad idea?
It’s prudent to avoid joint personal loans if one co-borrower has poor credit, as it may result in higher interest rates or application rejection. In addition, you may want to avoid joint loans if repayment would strain either budget or if one borrower’s income is uncertain.
“If there is a high risk of default, a joint personal loan is a horrible idea, since it places two people at risk for legal action and negative credit reporting,” Chami points out.
Alternatives to joint personal loans
If you decide a joint personal loan isn’t the right option, there are alternatives worth exploring:
- Credit cards: Interest rates on credit cards are typically high, but you can apply for a credit card with a 0% introductory rate. If you pay off the balance before the introductory period ends, you basically scored an interest-free loan!
- Leverage your home’s equity: If you own your own home and have some equity built up, consider a home equity loan, a home equity line of credit (HELOC), or a shared equity agreement.
FAQ
Is a joint personal loan easier to get?
Applying jointly may improve approval chances, lower interest rates, and increase loan amounts compared to individual applications.
What is the maximum amount you can borrow with a joint personal loan?
Lending limits vary, but joint personal loans typically top out at $100,000, depending on the lender.
What credit scores do you need to get a joint loan?
Credit score requirements vary but generally require at least fair to good credit scores (580 to 739).
What are the risks of getting a joint loan?
Risks include potential credit score damage, rejection based on one borrower’s finances, and strain on the relationship between co-borrowers if repayment becomes challenging.
Key takeaways
- Joint personal loans involve two borrowers sharing the loan proceeds and responsibility for repayment.
- Consider factors like credit history, loan purpose, and lender reputation when applying for a joint personal loan.
- Alternatives to joint personal loans include credit cards, personal lines of credit, and home equity financing.
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