In some cases, doubling the number of applicants can boost your borrowing power, help you get a better deal and share the burden of repayments. Alternatively, your fellow borrower could become an anchor to your credit score with the loan becoming an expensive burden that is hard to shift. In this article, we break down how joint personal loans work, highlight the important issues to think about when applying for a joint personal loan and help you work out if it is the right option for you.
What is a joint personal loan?
A joint loan allows you to split the cost of repaying the money with someone else. However, you also share the responsibility of clearing the debt with that person. This means that you are both committed to paying back the whole amount, not just your respective shares. If one person cannot pay, the other will have to cover the repayments.
Choosing a joint loan can effectively double your borrowing power, as you will be lent what the lender believes you and your co-applicant can afford to pay between you. This means you could use it to borrow a large sum of money for a new car, home improvements or a wedding – any cost you wouldn't be able to afford on your own or want to share with your partner.
How a joint personal loan works
The most important feature to understand about a joint loan is that both applicants are legally responsible for making sure the repayments are made on time and the debt is cleared in full. This applies whether the two people have an ongoing relationship or not. For example, a married couple who take out a joint loan are each committed to making sure that the loan is repaid. If they divorce, the status of the loan does not change – they are still both legally committed to repaying the money. There is not usually a way for either borrower to be removed from the loan agreement before it is repaid.
Joint loan application
Before you start your joint loan application it is a good idea to have to hand both applicants’ address history for the last three years, income and employment details, and details of the bank account the money will be paid into.
When you apply for the loan, both applicants will have to undergo a credit check. This is an assessment of the credit history held on you both by whichever credit reference agency the lender chooses. The check will give the lender an idea of how likely it is you will be able to afford the loan you are applying for. If it thinks you can be relied upon to meet the monthly payments, your application will be approved. If it thinks you may struggle to repay the loan, your application may be rejected. This is also the point at which the lender decides what interest rate and loan term to offer you if you are accepted.
Approved loans are usually paid out quickly, though there can be issues that may delay you receiving the money. Once you have the cash, you will need to start paying it back. This will be through regular monthly instalments. Some lenders will allow you to clear the debt early with a lump sum, but others will charge you a fee to do so. There should be no charge for paying off up to £8,000 and for loans over £8,000, lenders can charge only up to 1% (or 0.5% if you are in the final year of the repayment period).
Types of joint loan
There are a few different types of borrowing that can be applied for as a joint loan. You will be able to take on unsecured debt, such as a personal loan or overdraft, or a secured debt, such as a mortgage product. Find out more about the key differences in our article ‘Secured vs unsecured loans: Making the right choice’.
The notable exception when it comes to joint borrowing is a credit card. With a credit card, the main cardholder is always responsible for paying off the balance. If any payments are missed, it will be recorded on the credit report of the main cardholder. Even though you can have additional cardholders, they will not be responsible for the debt they build up – it will still be down to the main cardholder to ensure it is paid off.
Here is a summary of the types of joint borrowing you could apply for:
- Unsecured loan - This is a type of loan that does not require any asset or property to be secured against the debt. You may also see it referred to as a personal loan.
- Secured loan - A secured loan requires a valuable asset – often your home – to be secured against the debt. Whatever asset you put up will be at risk of being sold if you cannot repay what you owe.
- Mortgage - This is one of the most common types of joint borrowing as many couples will pool their borrowing power to buy a house.
- Overdraft - By opening a joint current account with an overdraft, you will take out a joint line of credit. Whatever debt is built up, both account holders will be jointly responsible for paying it back.
Read our article 'Which is the best type of loan for you?' to learn more about how to choose the right loan.
Pros and cons of joint personal loans
Make sure to consider all of the key advantages and disadvantages of a joint loan.
Pros of joint personal loans
- Boost your borrowing power - You may be able to borrow more money with a joint loan because the lender will judge how much you can afford to repay on your combined income.
- More likely to be accepted - If you have a low credit score or a poor credit history, applying with someone who has a good score may balance things out and give you a better chance of borrowing the money you need.
- Someone else can make the repayments - If you run into any unexpected financial trouble and can’t afford your repayment, your co-applicant will have to pay your share. This makes it less likely that any missed repayments will end up on your credit file.
Cons of joint personal loans
- You will be financially linked to the other applicant - If the other applicant has a poor credit rating, taking out a joint personal loan may harm your credit score by association. This may make future borrowing more difficult, as a prospective lender will take both credit histories into account.
- You may get a better deal by yourself - If the person you are applying with has a low credit score or poor credit history, then you may be better off applying by yourself, as you may be able to access a better rate based on your credit file alone.
- The other applicant might miss a repayment - If the other applicant misses a repayment, you will need to pay both shares. If you do not, it will go into your credit file as a missed repayment.
- You may have to repay the loan by yourself - While you hope it will not happen, your relationship with your co-borrower may break down, or they could hit financial hardship. Either way, you may find yourself having to repay the entire loan yourself.
What you can use a joint personal loan for
Personal loans, including joint personal loans, do not usually come with many caveats on how you can spend the money. You may be asked what you want to spend the money on when you apply, and you should be honest. Most people apply for a loan to cover a big expense such as paying for home improvements, a wedding or a new car.
What you can't use a joint personal loan for
There are a few restrictions around personal loans. For example, you cannot use a loan to fund:
- illegal activity
- property purchases (for you or someone else, including deposits)
- gambling
- investments
- business spending
- timeshare contracts
Joint loan eligibility
Different lenders will have different eligibility criteria for joint loans, though some requirements will apply across most lenders. For example, both applicants will need to:
- be 18 or over
- be a UK resident
- have a UK current account
- not be in full-time education
- not have recently been refused credit
Using a joint personal loan to consolidate debt
You could use a joint loan to consolidate your and your co-applicants’ debt. For example, you may both have multiple debts that you are making repayments for each month. Some of this debt may be growing with interest at a high rate. By consolidating your debt into one joint personal loan, you will be able to make one monthly payment rather than several and potentially save on interest. You can do this by taking out a joint personal loan that is large enough to pay off your existing debt, or at least the existing debt that has a higher rate of interest than the loan. You can then focus on repaying the loan together, rather than managing multiple different monthly payments individually. We explain debt consolidation in more detail in our article ‘What is the best way to consolidate my debt?’.
