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’.
As with individual borrowing, you can apply jointly for a variety of loans. These include:
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.
There are advantages to getting a joint loan, but potential pitfalls to consider too.
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.
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.
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.
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.
Application requirements differ between lenders, but the following are common:
To apply, you may also need to have to hand:
If you’re looking for a loan, you’ll want to find the best borrowing rates possible. By using MoneySuperMarket you can compare deals from our leading panel of lenders.
Our eligibility checker also shows you your chance of being accepted for loans, as well as the guaranteed rate, so you can weigh up the facts and decide which deal to go for.