Can Joint Personal Loans Help You Qualify?
If you’re struggling to qualify for a personal loan on your own—or, you want to split the financial responsibilities (and benefits) of a loan with someone you trust—a joint personal loan might be the right fit for you.
Joint personal loans allow you to pool your collective buying power, help you meet a lender’s qualifications, and may allow you to access more favorable terms. There are a lot of positives to applying together. However, before you sign on the dotted line, make sure you know all the angles.
What are Joint Personal Loans?
A joint personal loan, or joint-applicant loan, is when two individuals together share the requirements and repayment responsibility for a given loan. A common example is a home mortgage—where a primary and a secondary borrower commit to paying off the debt together.
To put it simply, a joint personal loan is one loan to two individuals. Both borrowers will be required to fill out forms, pass credit requirements, and share equal responsibility for the loan payments.
How Can I Use Joint Personal Loans?
Joint personal loans are much like a regular (or individual) personal loan in that you can use the funds for almost any purpose. Many borrowers use their loans to fund home improvement projects, cover unexpected expenses, pay for medical procedures, or pay down debt. Once you’ve completed the paperwork, the money is transferred to your designated bank account. After that, the decision is up to you and your coborrower as to how to use the funds.
Depending on how you want to use the funds or how much money you need, other loan product might be a better fit. For example, if you’re buying a home, you’ll likely need to borrow a much larger amount than is possible with a personal loan, and will want to take advantage of lower interest rate afforded by having a home mortgage. Other loan types, like student loans and auto loans, are specially designed to suit those purposes.
Why Apply for Joint Personal Loans?
One of the main reasons many people apply for a personal loan together is to get a larger loan amount to reach a financial goal, such as to consolidate and pay down debt more quickly. Including two incomes on your loan application may help you qualify for more than you would solo, and you’ll have the reassurance of sharing the responsibility for the loan. Plus, a majority of people who consolidate debt with a personal loan can increase their credit scores—most eventually raising their score by 20 points or more. It can also help you decrease your credit utilization, and get a mortgage, loan, or other credit in the future.*
Another common reason to apply for a joint personal loan is if one borrower’s credit profile falls just shy of a lender’s requirements. Let’s say you work in the gig economy. Proving you have a regular income could be tricky. Bringing someone who receives regular paychecks in as a second borrower on the loan can make a lot of sense. It can also give you a boost if you or your partner has a lower credit score. While all lenders set minimum credit score requirements, you can often still get approved if at least one of you meets the threshold.
How Much Can I Save With Joint Personal Loans
The amount you will save (or pay) for a joint personal loan depends on creditworthiness of you and your coborrower. Just like other types of loans, the less “risky” the borrower(s), the lower your annual percentage rate (APR), or cost to borrow money. Therefore, it is possible for a lower credit score individual to piggyback off of (and benefit from) a coborrower’s higher credit score. This is particularly true if the individual with the higher credit score is also the higher earner.
With personal loan rates typically ranging between 10% and 28%, a lower interest rate can result in the potential for significant savings—especially on larger loan amounts.
Individual or Joint Application: What's Best?
There is no concrete answer to whether or not it’s better to apply for a loan on your own or with a coborrower. The right answer depends on your personal financial situation and what you want to do with the funds.
For some, it’s more of a personal decision. Some people feel comfortable sharing in financial responsibilities, and having a coborrower can feel safer, or more motivating. For others, it’s a necessity. Maybe they need a joint applicant to qualify for a loan they couldn’t qualify for on their own, and/or they need financial help making payments.
However, before you decide, consider the relationship you have with your coborrower, as well as the terms of any potential personal loan. Typically, joint applicants include family members, romantic partners, and business partners. In other words, someone you know well and trust will be financially responsible for potentially a long period of time. You’ll also want to consider how becoming mixing your finances with someone else could impact your relationship going forward. If your relationship doesn’t last, how will you plan to keep up with your loan payments together? Because both will be responsible for making payments, it’s important you clearly understand what each person is responsible for, and how long until the debt is repaid.
Joint Personal Loans vs. Co-signer: What's the Difference?
Many people confuse the difference between a co-signer and a coborrower on a joint personal loan. In a loan with a co-signer, the debt is not shared equally between the borrowers. A co-signer acts as a guarantor, meaning they don’t owe anything unless the primary borrower fails to meet their debt obligations (in which case the co-signer takes on the responsibility of making the payments). In essence, a co-signer vouches for your creditworthiness without necessarily receiving any benefit from the loan proceeds.
Getting a loan with a co-signer makes sense if you have a low credit score and know someone, such as a parent, who is willing to take on the risk of you defaulting to help you secure you a better rate, bigger loan amount, or both. On the other hand, a joint personal loan is a good choice when you and a co-borrower are comfortable sharing equal responsibility for the repayment of the loan, and will both benefit in some way in how the funds will be used.
How to Evaluate Your Potential Coborrower
The first thing to consider when applying for joint personal loans is your relationship with the coborrower. You will also want to find out about their credit score, stability of current (and future) income sources, and previous loan repayment history. Remeber, if your coborrower doesn’t hold up their end of the agreement, you will be on left holding the bag. So, in a sense, you’ll need to do some of the same vetting your lender would in evaluating your coborrower’s financial responsiblity, and ability to repay.
Coborrower Evaluation Checklist
Use this quick checklist when evaluating a potential coborrower:
Are they easy to get along with? Are they generally good with money? How do they usually solve problems? Are they calm and rational? Does your coborrower have good or excellent credit? Or is their credit score just a little bit better than yours? Do they keep up with their own debts and make payments on time? Choosing a second borrower with a much better credit history, record of on-time payments, and credit score than you can help you qualify for a loan you couldn’t get on your own.
2. Credit Score
3. Employment stabilityUnderstand your coborrower’s work situation. How do they make money and how long have they been working at their current job? Are they in good standing with their employer? Ask questions to determine if they are likely to stay employed for the length of your loan term.
4. Debt-to-income ratioDebt-to-income ratio is your total debt divided by your income. When you apply for a joint personal loan, a lender will combine these numbers for you and your coborrower. This means you will need to be about to talk to this person about money. Select someone who is completely transparent about their income, existing debts and all outstanding loan amounts (credit cards, auto, student loans) so you can calculate your combined debt-to-income ratio to make sure they can actually help you qualify.
How to Apply for Joint Personal Loans Online
There are many opportunities to apply for personal loans online, and most online lenders accept joint-applicant loans. Keep in mind, you’ll need to enter information about both you and your coborrower when you apply. It also helps to seek pre-approvals from several lenders. Getting pre-approved won’t impact your credit score and you can use the information to compare rates and terms so you know where you can get the best deal.
The application process, from approval through funding, can take as little as a few business days to a week. Occasionally, it can take a little longer. Once a joint application is approved, both the borrower and coborrower are fully obligated to repay the loan.
* Data from TransUnion research and press release, “Debt Consolidation Often Results in Higher Credit Scores and Better Credit Performance,” 10/30/2019.