Personal Finance

What Is a Joint Loan?

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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:

A co-borrower:

  • Has their name on the loan agreement or title.

  • Helps make payments toward the loan.

  • Is equally responsible for loan repayment.

A co-signer:

  • 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

Pros

  • 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.

Cons

  • 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.

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