Joint loans
Taking out a joint loan could be an option if you want to save up with a relative or close friend towards a shared financial goal. But is it the right option? We explore the benefits and risks of joint loans to help you make an informed decision.
Taking out a joint loan could be an option if you want to save up with a relative or close friend towards a shared financial goal. But is it the right option? We explore the benefits and risks of joint loans to help you make an informed decision.
What is a joint loan?
A joint loan is one that you take out with another person, normally to borrow towards a shared financial goal. For example, a joint loan could be used to pay upfront for a destination wedding or dream holiday, to buy a new shared car or to renovate the house you live in.
Joint loans work in much the same way as individual loans. You’ll need to pay back the money you borrow plus interest, in monthly instalments over a specified period. The difference is there'll be two of you potentially liable for the debt.
With a joint loan, you and the other person are both responsible for the full debt - not just half or a pre-agreed share. This is called 'joint and several liability'.
Compare the Market doesn’t currently compare joint loans.
How do joint personal loans work?
Here’s how joint personal loans work, step by step:
1. Applying for a joint loan
Once you have both agreed how much you want to borrow, it’s worth shopping around to compare your options. You can use our loan calculator to help you make an informed decision about how different loan terms and rates can make a difference to how much you’ll need to pay back.
Before you apply, it’s also a good idea to check what loans you’re both likely to be eligible for. You can use our loan eligibility checker to see which of our loans you’re likely to be accepted for, without it impacting your credit score.
Once you’ve both come to an agreement on a joint loan that works for your needs and situation, you’ll need to make a joint application to your chosen lender.
2. Affordability and credit checks
You’ll both need to pass a credit check before a lender will agree to a joint loan. They’ll want to look at how you’ve both handled debt in the past, and your current credit utilisation rate – that is, how much of your current credit limit is being used.
They’ll also want to check that you can afford the monthly loan repayments by comparing your incomes with your regular outgoings and expenses.
3. The lender makes their decision
Once the lender has assessed your joint application and checked both of your credit score and histories, they’ll make their final decision on whether to approve you for a joint loan. If your application is accepted, they’ll also confirm what interest rate you’ll be charged.
Read our guide to find out what to do if your joint loan application is refused.
4. Receiving your joint loan
If your loan is approved, you should receive the money fairly quickly – normally within a week, but it could be just a few days – or sometimes less if you’re already a customer.
The money should go into the joint account you nominated during the application process, and once it’s there, you can use it as you please.
5. Paying the joint loan back
Once you’ve received the loan, you’ll also have to start paying it back, in fixed monthly repayments. It’s a good idea to set up a direct debit to do this automatically as missed payments could incur extra fees and charges and harm your credit score.
To avoid any conflict between you and the co-lender, it’s useful to have clearly set out expectations of how you will handle repayments. For example, this could mean both setting up a monthly direct debit into the joint account to cover half of the repayment.
In the UK, you can pay back a personal loan early at any time, but bear in mind that early repayment charges may apply.
Compare the Market Limited acts as a credit broker, not a lender. To apply you must be a UK resident and aged 18 or over. Credit is subject to status and eligibility.
What types of loans can I do a joint application for?
You can make a joint application for different types of loans as well as other types of borrowing, for example:
Joint secured loans
Sometimes called homeowner loans, when you take out a joint secured loan, you’ll use a shared asset, such as your home, as security for the loan. Using an asset as collateral in this way could give you access to larger sums of money and lower interest rates, because it reduces the risk for the lender.
But that means it’s riskier for you, the borrower. If you fail to keep up with the repayments, your home or other asset you’ve used as collateral could be repossessed.
Joint unsecured loans
You won’t need to offer up any kind of collateral for an unsecured loan. Instead, lenders will base their decision to approve your loan purely on your joint financial circumstances.
Unsecured loans are normally for smaller amounts, and the interest rate may be higher because the lender is taking on more risk. But if you miss repayments or fail to repay an unsecured loan, it could damage your credit score and affect your ability to borrow in the future.
Joint current accounts
A joint bank account could provide an option for joint borrowing if it has an arranged overdraft. A joint overdraft could be a lifesaver if there’s an emergency – like the boiler breaking, for example, and you need a quick fix to make ends meet before pay day.
Overdrafts are expensive, with banks typically charging higher rates of interest than you could expect with a personal loan, so they’re not really designed for longer-term borrowing. But they could be useful as a short-term safety net.
Joint mortgages
Mortgages are probably the most common type of joint borrowing. Buying a home is the biggest purchase most of us make, and most of us need to borrow a decent chunk of the sale price to make it happen.
Joint mortgages are not just for couples. If you’re struggling to get on the property ladder, going in with a relative or friend could get you over the line. Or maybe you’re looking at a joint investment in a buy-to-let.
Joint car finance
If you’re buying a car with someone else, you may want to make a joint application for car finance. Teaming up with a partner or family member could even increase your chances of being accepted, if you have a low credit score.
Bear in mind that not all lenders offer joint car finance applications. And those that do may only consider joint applicants who live at the same address.
Did you know?Here in the UK, joint credit cards are not a thing. If you want to share your credit card with someone, you’ll need to take one out in your own name and then add them as a cardholder. They’ll be able to spend against your limit, using their own credit card, but you’ll be responsible for all the debt. |
Joint loan calculator
How long you borrow for and the interest rate you’re charged affects how much you’ll repay each month and what the loan will cost you overall. Our loan calculator can help you easily compare your options and check that a loan is affordable.
What do we need to apply for a joint loan?
When you apply for a joint loan, you’ll be asked to provide personal details about you both, including:
- Your address history for the last three years
- Your employment status, salary and other income
- Your financial dependents
- Your outgoings and expenses, including rent or mortgage payments
Are we eligible for a joint loan?
Eligibility requirements vary among lenders, but typically both applicants will need to tick the following boxes as a minimum:
- Both applicants must be at least 18 years old, or in some cases 21. There may also be upper age limits.
- Both applicants must be UK residents with full rights to live in the UK.
- Both applicants must have a UK current account. If you are applying through a bank, they may insist that you have both had accounts with them for a minimum length of time.
Who can I get a joint loan with?
As long as both applicants are eligible, you could technically get a joint loan with whoever you want. It could be your partner, your mum, your brother, or your best friend. You could even take out a joint business loan with a potential business partner.
However, creating a financial link with someone is a big step and you need to make sure you trust the person you’re applying with. When you take out a joint loan with someone you have, in the eyes of the law, ‘joint and several liability’ for the debt.
That means that you can be held responsible for the entire debt if your co-lender passes away, falls ill or simply decides not to pay. And financial ties once made, could be hard to undo.
Are there joint loans for bad credit?
You may be able to find a joint bad credit loan if one or both of you has a bad credit history. However, there could be fewer options available to you and the rates you’re offered may be higher to cover the lender against the increased risk.
If you have bad credit, then applying for a joint loan with someone with good credit could increase your chances of being accepted. However, if you’re considering helping someone out by co-signing on a loan, bear in mind that creating a financial association with someone who has poor credit could affect your chances of borrowing in the future.
What should I consider when taking out a joint loan?
Taking out a joint loan with someone shouldn’t be done lightly. Here’s a rundown of the main drawbacks and advantages to consider before you make that application.
What are the benefits of a joint loan?
- You may be able to borrow more – with two incomes backing up the loan, you may have a better chance of being accepted for a larger sum.
- You may have a better chance of being accepted – if one of you has a low credit score or income, applying with someone who has a high income and healthy credit score could mean you have a better chance of being approved for a loan.
- You could rely on each other to pick up the slack – if you do have a tough month or two, you can ask your co-lender to cover the repayments till you get back on your feet.
What are the disadvantages of a joint loan?
- It could negatively impact your credit score – being financially linked to someone with bad credit could affect your own chances of borrowing in the future.
- You may not get as good a deal – if you’re applying for a loan with someone who has a poor credit history you may be offered worse rates than if you applied individually.
- You could end up liable for the entire debt – if circumstances change and your co-lender decides not to pay, you’ll be left responsible for paying up the rest of the debt, even if you didn’t spend a penny.
What happens if my partner leaves or dies?
If you take out a joint loan with a partner and the relationship breaks down, you’ll both still be responsible for the debt. If payments are missed or you default on the loan, it will affect both partners’ credit reports and their chances of securing credit in the future, regardless of fault.
Similarly, if your partner dies, and the money left in their estate does not cover their share of the debt, you’ll be left responsible for the entire debt.
In the case of a separation, ideally both partners would aim to reach an amicable agreement to continue to meet their financial commitments and pay off their joint debt. Partners can then apply to remove their financial ties to one another by applying for a ‘notice of disassociation’ from the three main credit reference agencies.
Unfortunately, you’ll still be held responsible for the debt even if your partner is not cooperating. In this case, you could try talking to the lender to come to a new agreement.
If you are struggling with debt, there is help available. For free, non-judgemental debt advice in your area, check out MoneyHelper’s free debt advice locator tool.
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Frequently asked questions
Is it easier to get a joint loan?
It could be easier to get a joint loan, particularly if you’re applying with someone who has a good credit score or high income. If there are two incomes to rely on, then there’s less risk to the lender of their loan not being repaid.
However, ultimately it depends on the loan you’re applying for and the financial circumstances of both the applicants.
Are joint loan applications more successful?
If you’ve struggled to get a loan by yourself, then applying with someone else could improve your chances of being accepted. Especially if they have a good credit score and rank highly on affordability checks.
But it’s important that both parties are aware of the potential implications of sharing a debt with someone else and how it could impact their financial future.
How can I get my name off a joint car loan?
Unfortunately, once a joint loan agreement has been made, you can’t simply remove your name from the agreement. In the UK, when you sign a credit agreement with someone else, you are formally agreeing to repay the debt in full if the other co-signer can’t or refuses to pay.
That’s true even if your name is on a car loan for a car that your partner has driven off in and then stopped paying for. You could try speaking to the lender and explaining the situation. They may be able to reach an agreement with you if you’re unable to pay the debt in full.
