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 there are risks to consider such as the impact to your credit score of being financially linked.
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 but each person is liable for repaying the full amount.
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. Here are some of the key need-to-knows for joint loans:
With a secured loan you put up a valuable asset, usually your home, as collateral or security against the loan. This means if you don’t make the repayments on the loan, your house could be repossessed.
In contrast, with an unsecured personal loan you do not have to secure the loan against anything. It is based on thing like your credit score and your income.
To find out more, check out our guide about the key differences between a secured and unsecured 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 be 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.
If you want to pay the loan off early, you may face an early repayment charge (ERC) 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.
Joint loans can be secured or unsecured
You will make a joint application
Both individuals will be credit checked
There might be early repayment charges
You can often borrow more money with a joint loan
What should you consider before applying for a joint loan?
You may be applying for a mortgage with a partner, or a loan for something like a new car. Making the loan a joint loan means you can usually access a larger sum of money.
As both people will be credit checked, this can often help if one person has a poor credit score and wouldn’t be accepted on their own. It can also be a good way of simplifying your jointfinances.
Yet as both people are 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 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.
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 types of loan offer joint applications?
As with individual borrowing, you can apply jointly for a variety of loans. These include:
A loan can be taken out against property or secured against other assets.
Often called a personal loan, you do not need to put forward collateral as security against the loan.
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.
Your combined income often allows you to borrow more from the mortgage lender to help you fund your property purchase.
Secured loans
Unsecured loans
Current accounts
Mortgages
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.
Personal Finance & Insurance Expert
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."
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
Compare loans with MoneySuperMarket
While MoneySuperMarket does not currently offer joint loans, we can help you find the best rates for individual secured and unsecured loans from our leading panel of UK lenders.
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.
MoneySuperMarket is a credit broker – this means we’ll show you products offered by lenders. We never take a fee from customers for this broking service. Instead we are usually paid a fee by the lenders – though the size of that payment doesn’t affect how we show products to customers.
