Guide to taking a loan out with someone else
Applying with a partner can give you a better chance of borrowing what you need. But how do you go about getting a joint loan, and what are the risks?
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, it’s important to understand that while 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 types of loan offer joint application?
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 you put forward as a couple, including your car
Unsecured loans: Often called a personal loan, these are similar to secured loans except you do not need to put forward collateral as a guarantee
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.
Why might you consider a joint loan?
There are advantages to getting a joint loan, but potential pitfalls to consider too.
Advantages to getting a joint loan
You may be able to borrow more: For example, 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. The higher collective income providers more security to the lender that you’ll be able to repay the loan
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 to getting a joint loan
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. This is why it’s a good idea to check your credit ratings before making a joint application
Being offered a worse deal: If one of you does have a low credit score, it could affect your chances of getting a joint loan or receiving the leading market rate. The lender will assess both parties and want to be confident you’ll be able to meet repayments
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. There are several examples where this could happen. For example, if a couple have an acrimonious split, or someone loses their job or passes away
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 your credit ratings, meaning it could be hard to secure credit in the future
Can you get a joint loan with bad credit?
While you might be able to get a loan, it’s unlikely you’ll be offered either the market-leading advertised rate or be able to borrow as much as someone with a good credit score. This is because you’ll present a higher risk to the lender, which they’ll offset by raising 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’s credit rating too – and make it more difficult to take out a loan in the future.
Can you get a joint loan if one party is unemployed?
You can still apply for a loan, as long as one of you has a regular income – though you may find interest rates to be higher in general.
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 picked up 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 done. You can also ask for a statement of correction on your credit file explaining any errors or discrepancies.
Can your name be taken off a joint loan before it is paid up?
This can be tricky. Both borrowers would have to agree that one of them is to be removed, but the final decision tends to be down to the discretion of the lender.
They will want to be sure that the remaining borrower has the means to afford all repayments and can be liable for the full amount before relinquishing the other party of liability.
Often it may be easier to refinance. For example, taking out an individual loan to clear the existing joint loan. When refinancing also take note of any fees you may incur, such as early repayment charges.
How do we apply 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)
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