Can You Get a Joint Personal Loan? What to Know
Applying for a personal loan with someone else? Discover how combined finances impact approval, obligations, and other loan options.
A personal loan provides a lump sum of money that individuals can repay over a set period, typically with fixed interest rates. These loans offer flexibility, often utilized for various financial needs such as consolidating debt, funding home improvement projects, or covering unexpected medical expenses. While many personal loans are obtained by a single borrower, two individuals can apply together, combining their financial standing to potentially improve their borrowing terms.
Eligibility for a Joint Personal Loan
When evaluating a joint personal loan application, lenders assess the combined financial profiles of both individuals. This review helps determine the loan’s approval and its associated terms, such as the interest rate and maximum amount.
A primary factor is the combined income of both applicants, which lenders consider to gauge repayment capacity. A higher total income can strengthen the application, signaling a greater ability to manage monthly payments. Lenders also scrutinize the credit scores of both individuals. A strong credit score from one applicant can help mitigate the impact of a lower score from the other, potentially leading to better loan terms or a higher chance of approval.
Another important metric is the combined debt-to-income (DTI) ratio, representing the percentage of gross monthly income allocated to debt payments. Lenders calculate this ratio for both applicants, using it as a key indicator of financial risk. Beyond these financial figures, lenders also consider the employment stability and residency history of both applicants. Consistent employment and a stable residential background demonstrate reliability, reassuring the lender of the applicants’ ability to meet their repayment obligations.
Applying for a Joint Personal Loan
Before submitting a joint personal loan application, both individuals must gather specific documentation and information. This preparatory step ensures a smoother application process and helps verify the financial details provided to the lender.
Each applicant will need to provide government-issued identification, such as a driver’s license or passport. Proof of income is also required from both parties, typically recent pay stubs, W-2 forms, or tax returns. Lenders may also request bank statements to verify financial activity and stability.
The application form itself will require detailed personal and financial information from both individuals. This includes full legal names, Social Security numbers, dates of birth, and current employment details. Applicants must accurately report their current income figures and list existing debt obligations. It is important for co-applicants to have a clear discussion and agreement regarding their financial commitment and expectations before proceeding with the application.
Understanding Joint Loan Obligations
Once a joint personal loan is approved, both borrowers assume significant legal and financial responsibilities. A fundamental concept governing these loans is “joint and several liability.” This means that each borrower is individually responsible for the entire loan amount, not just a proportional share. If one borrower is unable to make payments, the lender can pursue the other borrower for the full outstanding balance, regardless of any internal agreements.
The repayment performance of a joint loan directly impacts the credit scores of both individuals. Timely payments positively contribute to the credit history of both borrowers. Conversely, missed or late payments, or a default on the loan, will negatively affect the credit scores of both borrowers. This negative reporting can remain on credit reports for up to seven years.
In the event of a loan default, the lender retains recourse against both individuals, as both are legally obligated for the full debt. This means that if one borrower pays more than their agreed-upon share or becomes unable to contribute, the other borrower remains fully responsible to the lender for the entire amount.
Other Personal Loan Structures
Beyond joint personal loans, various other structures exist for individuals seeking personal financing. Each type caters to different financial situations and borrowing needs, offering distinct features regarding responsibility and collateral.
An individual personal loan involves only one borrower who is solely responsible for the repayment of the loan. This structure is suitable for individuals who can qualify based on their own income and creditworthiness, and who prefer to manage the entire financial obligation independently.
A co-signed personal loan differs from a joint loan in the role of the additional party. In a co-signed loan, a primary borrower is responsible for the loan, but a co-signer agrees to repay the debt if the primary borrower defaults. The co-signer does not typically have access to the loan funds. This arrangement is often used when a primary borrower has insufficient credit to qualify on their own, and the co-signer’s strong credit profile helps secure the loan.
Personal loans are also categorized as either secured or unsecured. Secured loans require collateral, such as a vehicle or savings account, which the lender can seize if the loan is not repaid. This reduces lender risk, often resulting in lower interest rates and higher loan amounts. Unsecured loans do not require collateral and are approved based on creditworthiness, income, and debt-to-income ratio. While unsecured loans may carry higher interest rates due to increased lender risk, they do not put personal assets at risk.