How do joint loans work?
A joint loan combines the annual incomes or monthly paychecks of two people looking to borrow money. Usually, the loan is made between a couple or business partners but this isn’t strictly the case. Any two people who fulfil the lender’s criteria can apply for a joint loan.
Combining your income is a great way to help get approved for a loan as it means you provide larger overall income, giving certain assurances to lenders and so making it easier to qualify for a larger loan.
There are many types of loans you can take out jointly. For example, you can apply for joint mortgage loans or a guarantor loan. Even setting up a joint bank account with an overdraft facility can be considered a joint loan.
With these things in mind, don’t be afraid to ask around and see what types of loans could suit you and your partner’s needs.
How do I apply for a joint loan?
When you bring your partner into the equation, the lender will consider all background information carefully about both you and your partner. The lender will determine the probability of you getting a joint loan based on several background checks.
Usually, important checks will be things like:
- Personal income
- Employment status
- Credit history to date
- Residential status
- Minimum Age
Once your application has been approved for a joint loan, you and your partner will have your credit files linked. You can still apply for an individual loan, however, a credit search will show your partners credit history too and take this into account. This could be a good thing or a bad thing, depending on whether your partner's credit history is seen as positive or negative.
What are the advantages of taking out a joint loan?
You should think about a joint loan if you or your partner is struggling with multiple debts. For instance, if you or your partner have struggled to pay bills or make multiple loan repayments in the past, it might make sense to apply for joint loan debt consolidation. This is often cheaper and easier to manage than multiple loans, as it combines several loans and repayments into one bigger loan.
Furthermore, should you as an individual have bad credit with several banks rejecting your loan applications, the strike against your credit rating puts you further into a cycle of poor credit history that can seem never-ending, difficult to get out of and leaving you resentful.
That is why having a partner to share payment responsibilities can help ease financial pressures when used responsibly.
What are the drawbacks?
It is important not to underestimate that this is a joint couple loan and with it comes a shared payment responsibility.
For example, If the relationship between the two partners, or a married couple should end, the loan will still need to be paid off. Each person is responsible for the loan and to fulfil the requirements regardless of what happens personally.
By accepting a joint loan, you each agree to pay off the whole debt even if the other person does not.
The pro’s of a joint personal loan include securing a larger loan amount should you need it as well as sharing financial responsibility. But should you abuse this shared financial responsibility such as one of you not being able to keep up with repayments, you will still have to repay the full amount you have borrowed within the same repayment schedule.
Failure to make your loan repayments could incur charges as a result of you breaking your contract. There is always an element of risk involved with applying for a joint loan as a couple.
Unforeseen circumstances do occur, so it is important to clarify the position and duties of each individual to make repayments, their responsibilities and instructions in case of accidents, injuries or even death.
The cost of a joint loan should be considered closely - guarantor loans or payday loans are for example more expensive than a longer-term joint loan to buy a house. When you compare loans on Choose Wisely you will be able to see the total cost of the loan along with the APR.
Who does joint loans?
Should this all sound good to you, then you are going to want to begin looking.
Joint loans can be provided by several lenders across the UK. Many websites offer instant decisions, providing you with a wide range of borrowing options and flexible repayment schedules.
It is important to check the criteria for joint loans as they vary across different lenders. Though arguably, most high street banks provide similar rates, decisions are based upon your circumstances. Therefore, instead of always seeking the best joint loans, you should ask, “does this joint loan product suit our needs and current status?”
The best joint loan may not always be the one with the lowest rates. Consider whether you need a joint loan for bad credit, or indeed a loan for a married couple with the likelihood of a prospective family soon. Other factors such as repayment schedules become more important and so should be taken into consideration.
What banks do joint loans?
If you have bad credit a bank won’t always accept your loan application, but there are other lenders that will. Choose Wisely provides you with an overview here.
Banks such as Tesco Bank, Sainsburys Bank, TSB, Santander and HSBC UK all provide joint loan accounts with a relatively straightforward process. They often offer loan terms ranging from 1 year to 10 years, depending on the amount you ask to borrow and the current rates.
There are no set amounts as to how much you can borrow, but lenders typically offer anything between £1000 to £15,000 limits.
Always remember to be careful and vigilant when checking out lenders.
How to apply for joint loans
Remember, many sites claim to offer impartial advice, flexible repayment periods and guaranteed approval, but this is not always the case. Such attractive deals can sometimes come with nasty surprises such as steep interest rates or inadequate or poorly performed affordability checks. Therefore, it always pays to read the fine print.
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Similar to a joint loan, the difference being there are dedicated guarantor lenders as opposed to banks. Where lenders need to manage risk, a guarantor will add additional security to an application by agreeing to pick up the costs if the borrower gets into arrears.
Unsecured personal loans
If you have good credit, then this is a good option. If you know you have bad credit, then this is not the best option for you as it is highly likely your application will be declined, further harming your credit file.
Secured personal loans
If you need to borrow a larger loan but have a fair to poor credit, you can secure your loan against an asset such as your car, your home or some other form of collateral - hence the term ‘secured’ loan.
You can use joint personal loans for just about anything, within reason, once you have the money available in your banking facility. You don't have to pledge to use the loan for a specific purpose. Typically, where these types of loans are for larger amounts they're normally used for larger purchases or consolidating other debts. Lenders will not offer money to vulnerable consumers if they have reason to believe the money will be used for gambling for example.
The amount you can borrow will always be down to the lender's discretion as they will assess what they feel will represent a necessary level of risk for each applicant when lending to someone in your personal circumstances. As long as you can afford the payments lenders will typically offer anything between £1,000 and £15,000.
No. Marriage is not a condition that lenders look for in a joint loan application. Therefore you could be engaged or cohabiting with the person you're applying with. In fact they don't need to be a spouse or significant other at all. If a friend or business partner is willing to apply with you then this will also be considered by most lenders. Ultimately, lenders are most concerned about your ability in repaying the loan, so if you have a good, yet informal, relationship with another applicant whose willing to tie themselves with you financially then your application is likely to be considered.