What Is a Joint Loan?
A joint loan allows you to get a loan with another person, known as a co-borrower, who shares ownership of the loan and responsibility for repayment.
Mortgages and auto loans are commonly joint loans, but you can also get a joint personal loan. Joint personal loans are good options for borrowers whose credit scores or income are too low to qualify. Adding a co-borrower may also get you better terms, such as a lower annual percentage rate or higher loan amount.
Joint vs. co-sign loan: What’s the difference?
Joint loans are similar to co-sign loans, which also involve two people on one application. It can be easy to confuse them; here’s the difference:
Has their name on the loan agreement or title.
Helps make payments toward the loan.
Is equally responsible for loan repayment.
Lends their good credit.
Has no right to the loan money.
Must repay the loan if you can’t.
Both joint and co-sign loans can increase your chances of qualifying for a loan, but co-borrowers have more investment in and ownership of the loan than co-signers.
For example, if you and a co-borrower are approved for a $50,000 personal loan, you both have access to the funds and are responsible for the monthly payment. On the other hand, a co-signer would pick up monthly payments for this loan only if you fail to repay.
How to get a joint loan
You can get a joint personal loan from some online lenders, banks or credit unions if both parties are members. Here are the steps to obtain a joint loan:
Check eligibility requirements. Pay close attention to the lender’s credit score and debt-to-income ratio requirements. For example, LendingClub requires a higher credit score for the primary borrower in a joint loan, and a shared DTI under 35%. Like regular unsecured personal loans, lenders also consider the income and credit histories of you and your co-borrower.
Pre-qualify with multiple lenders. Both you and your co-borrower can pre-qualify — check your estimated rate before committing to a loan — with most online lenders and some banks. Pre-qualifying does not affect your credit score.
Compare lenders and apply. Assess the APRs, repayment terms and potential fees, including origination and late fees, associated with each joint loan offer.
Applying for the loan. Once you select the best offer, you’ll have the option to add a co-borrower to the loan application. Lenders may ask for contact, personal and financial documentation when you apply for a loan.
Once you confirm the details of the application, lenders will do a hard credit check, which will temporarily dip your credit score. Upon approval, you both have to consent to the loan agreement.
Here are a few lenders who offer joint loans:
How do joint loans affect your credit score?
A joint loan will show up on your and your co-borrower’s credit reports, and all loan activity — like on-time or missed payments — can impact your credit score.
For example, on-time payments can help you build credit so long as the lender reports payments to credit bureaus. On the other hand, missed payments by you or your co-borrower can hurt each of your credit scores.
Pros and cons of joint loans
Increase your chance of qualifying. Borrowers with high debt-to-income ratios or low credit scores may elevate their chances of qualifying by applying with a co-borrower with higher income and stronger credit. You may also qualify for a higher loan amount and lower rate.
Share the cost of repaying. You don’t have to shoulder the cost of a personal loan alone since the co-borrower is equally responsible for repayment.
Can be on the hook for the entire loan. If the co-borrower fails to pay their share, then you’re responsible for the entire loan.
The potential for credit score dips. Because you both equally own the loan, if either of you misses a payment, the other person’s credit can take a hit.
Could lead to a damaged relationship. If either person fails to pay and negatively impacts the other, it could lead to a strained relationship.
Is a joint loan right for you?
A joint loan may be the right choice if:
You cannot qualify for a loan by yourself because your income or credit is too low to meet lenders’ requirements.
Adding a co-borrower allows you to get a lower rate or larger loan.
On the other hand, if you can qualify for a loan with monthly payments that comfortably fit into your budget yourself, you may not need a joint loan.
Joint loans are different than co-sign loans. A co-borrower on a joint loan shares ownership of the loan and responsibility for repayment. A co-signer is liable only if you fail to repay the loan.
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