Is it a good idea to take out a joint loan?
Applying for a loan with a partner can give you a better chance of borrowing what you need. But how do you get a joint loan and what are the risks?
Key takeaways
Joint loans can be secured (collateral required) or unsecured (no collateral)
Both applicants undergo credit checks based on income and credit history
Both parties are fully liable for the repayments so if one person can’t pay, the other must cover the shortfall
Combining good and poor credit histories may increase approval chances
A joint loan is a general term for any borrowing where more than one person is responsible for paying back the money.
They are similar to individual loans in that you typically pay back the money with interest through monthly repayments over a certain period.
However, although you might decide to split the repayments evenly, each individual is not responsible for their half of the amount owed. Instead, you are both liable for the full amount.
This means that if one party cannot pay – or refuses to pay – the onus lies with the other to make up the shortfall. This is called ‘joint and several liability’.
What is a joint loan?
A joint loan is a general term for any borrowing where more than one person is responsible for paying back the money.
They are similar to individual loans in that you typically pay back the money with interest through monthly repayments over a certain period.
Joint loans can be secured or unsecured. With a secured loan you put up a valuable asset, usually your home, as collateral or security against the loan.
In contrast, with an unsecured personal loan you do not have to secure the loan against anything.
How do joint personal loans work?
With a joint loan, once you have found the loan deal that’s right for you, you’ll make a joint application to the lender.
Both borrowing parties will then by assessed with a credit check to see if they can afford the monthly loan repayments, based on their income and credit history and score.
The loan provider will then make a decision over whether to approve the application. and what interest rate to charge.
Once the loan is approved, you receive the money to the nominated bank account and you'll start making the agreed monthly repayments until it is cleared.
There is likely to be an early repayment charge if you want to pay the loan off early, so take this into consideration when applying.
The advantage of a joint loan is that you can be assessed on your combined income, meaning you may be able to borrow more than if you were to apply individually.
But you are both liable for the full amount of the repayments. If one person can’t, or refuses, to pay, the other will be legally obliged to pay back the full amount.
What types of loan offer joint applications?
As with individual borrowing, you can apply jointly for a variety of loans. These include:
Secured loans: A loan can be taken out against property or secured against other assets.
Unsecured loans: Often called a personal loan, you do not need to put forward collateral as security against the loan.
Current accounts: Although not a typical loan, a joint current account with an overdraft facility can give both account holders the opportunity to dip in and borrow money from the bank.
Mortgages: Your combined income often allows you to borrow more from the mortgage lender to help you fund your property purchase.
You cannot take out a joint credit card in the UK. The main cardholder may let someone else have a card on the account, but the main cardholder – the one who signed the agreement – remains responsible for paying off the debt in full.
What is the eligibility criteria for a joint loan?
Application requirements differ between lenders, but the following are common:
Be 18 or over
Not in full-time education
A UK resident
Have a UK current account
Not declined for credit in the last month
To apply, you may also need to have to hand:
Address details for the last three years
Your income and employment details
Your online banking log-in (you may also be able to apply over the phone)
Can I get a joint loan with bad credit?
While you might be able to get a loan, you probably won’t have access to any market-leading rates. You may also be given a smaller amount than someone with a good credit score. This is because you’ll present a higher risk to the lender, which they’ll offset by increasing the interest rate.
Importantly, because a joint application will link the borrowers’ credit files, a bad credit score from one party could negatively affect the other borrower’s credit rating too – and make it more difficult to take out a loan in the future.
What are the pros and cons of joint loans?
There are several pros and cons of taking out a joint loan to consider. Here are some important factors:
Advantages
You may be able to borrow more: You might have a better chance of getting a bigger loan if the lender sees that both of you are earning and can make the repayments.
You have a back-up: If one of you cannot pay for a period, because you lose your job, for example, in theory the other borrower can step up to cover the repayments.
You may have a better chance of being accepted: If one of you has a poor or limited credit history, you may find applying for a joint loan with someone who has good credit raises your chance of being accepted.
Disadvantages
Being linked to the other party’s poor credit rating: You should avoid applying for a joint loan if your partner has a poor credit rating because it will link you financially – which may harm your chances of taking out a loan on your own in the future.
Being offered a worse deal: If one of you has a low credit score, it could affect your chances of getting a joint loan or receiving the leading market rate.
You may end up having to cover all repayments: While you hope this won’t happen, if circumstances change and the other party can no longer pay, you’re still liable for the outstanding balance.
Further damage to your credit rating: If one of you cannot afford the cost of the loan and it leads to payments being missed, it will negatively affect both credit ratings, meaning it could be harder to secure credit in the future.
What happens if the relationship breaks down?
If a relationship breaks down, then both parties still have joint liability to repay the loan. Similarly, if one of the borrowers dies and there is not enough in their estate to cover repayments, the debt will have to be repaid by the surviving party.
Having taken out a joint loan you will be financially linked. If the relationship breaks down, it’s best to clear the loan and then take steps to untangle your finances, such as any joint bank accounts, for example.
Once done, wait a few weeks and then check with each credit reference agency – Experian, Equifax and TransUnion – to ensure there are no remaining financial links between you and your ex-partner. This is called financial disassociation.
If links remain, contact each agency in turn to have the links removed and ask them to contact you to confirm when this is done. You can also ask for a statement of correction on your credit file explaining any errors or discrepancies.
Other useful guides
For more information about borrowing and loans see our detailed guides:
Is a joint credit card right for me?
Personal loans explained
Our expert says...
"A joint loan can be a useful financial tool, you may be able to take out more money if you apply with someone else and you’ve also got another person to pay it off with. However, as with all types of borrowing and debt, there are lots of things to be aware of in advance and there’s an extra layer of risk if you’re taking out a joint loan as if one person stops paying – or can’t pay – the other will be left footing the entire bill."
Compare loans with MoneySuperMarket
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To avoid your application being turned down and potentially damaging your credit score, our eligibility checker will show you your chance of being accepted for loans, as well as any guaranteed rates, so you can weigh up your options and decide which deal to apply for with greater confidence.
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