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What Is a Joint Personal Loan and How Does It Work?

What Is a Joint Personal Loan and How Does It Work?
Sulaiman Abdur-Rahman
Sulaiman Abdur-RahmanUpdated June 10, 2022
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Editor’s note: Lantern by SoFi seeks to provide content that is objective, independent and accurate. Writers are separate from our business operation and do not receive direct compensation from advertisers or partners. Read more about our Editorial Guidelines and How We Make Money.
A joint personal loan is an installment loan for two people. A borrower and co-borrower assume the financial responsibility of repaying the joint personal loan under terms and conditions of a loan agreement. Both of the borrowers may receive a lump sum of money in a shared bank account.Borrowers and co-borrowers can submit an application requesting a joint personal loan. Lenders may check the credit reports and debt-to-income ratios (DTI) of both applicants when deciding whether to approve or deny the joint loan request. Below, we provide more details about joint personal loans and highlight their pros and cons.

What Is a Joint Personal Loan?

A joint personal loan, also known as a joint-applicant loan, is a consumer lending product that provides two borrowers with financing. Lenders may disburse the funds in a joint bank account shared by the borrower and co-borrower, and both borrowers assume the financial responsibility of repaying the loan.Lenders may offer joint personal loans to partners, spouses, or members of the same household. A borrower and co-borrower may apply for a joint loan when seeking auto loan financing, mortgage loan financing, or personal loan financing.

How Do Joint Personal Loans Work?

Joint personal loans work by giving a borrower and co-borrower access to financing. The borrower and co-borrower can submit an application requesting joint online personal loans. The lender, as mentioned earlier, may check the credit reports and DTI ratios of both applicants when deciding whether to approve or deny the joint loan request.Your debt-to-income ratio, also known as DTI, measures your ability to afford new debt without defaulting on your existing obligations. This is calculated by dividing your total recurring monthly debt by your gross monthly income. Most lenders like to see a DTI below 36%.A borrower and co-borrower share the financial responsibility of repaying their joint loan. The lender may charge interest on the outstanding balance of the loan. Any terms and conditions of the joint loan agreement may apply to the borrower and co-borrower.Failing to pay and defaulting on a personal loan with your co-borrower can have a major impact on both of your credit scores. Lenders may also sue you and your co-borrower for breach of contract in the event of default.If the borrower or co-borrower dies, the other borrower may still have the legal responsibility of repaying the joint loan. A borrower in that case may request a loan modification if the surviving borrower has difficulty repaying the loan.The terms and conditions of a joint personal loan generally cannot change unless all parties agree on a modification. If a married couple takes out a joint personal loan and gets divorced, both individuals will continue to share financial responsibility on the loan.

How Is a Joint Personal Loan Different From a Cosigned Loan?

Joint personal loans differ from cosigned loans in several ways. Let’s review their similarities and differences in the table below:
Joint personal loanCosigned loan
Given to a borrower and co-borrower as joint applicantsOnly one borrower takes out the loan with the help of a creditworthy cosigner
Both borrowers have equal ownership of the loanThe loan is exclusively owned by the borrower, not the cosigner
Both borrowers share the responsibility of repaying the loanThe cosigner is expected to repay the loan only if the borrower falls behind on payments
Both borrowers agree to the terms and conditions of the loanThe borrower and cosigner agree to the terms and conditions of the loan
Lenders may require the borrowers to be related by blood or marriageLenders may not require the borrower and cosigner to be related by blood or marriage

Why Are Joint Personal Loans Used?

A borrower and co-borrower may use a joint personal loan to help cover planned and unplanned expenses, such as medical bills or home improvement projects. A joint personal loan can also be used to help two borrowers get access to financing.Applying for a joint personal loan with a creditworthy co-borrower might give you better terms than applying for a loan by yourself. Both borrowers may apply for the joint loan together using the strength of their combined incomes. This can improve their chances of getting approved for a lump sum of financing. Getting approved for a personal loan can be harder if you’re applying for a personal loan with bad credit without a co-borrower or cosigner.The borrower and co-borrower may qualify for lower interest rates and larger loan amounts by getting a joint personal loan vs. one of them getting an unsecured personal loan. A joint personal loan can benefit a borrower and co-borrower by allowing them both to diversify or build up their credit histories.

Who Is Eligible for Personal Joint Loans?

Two people who live in the same household may be eligible for a personal joint loan. Lenders may require both borrowers to provide proof of identity, proof of residence, and proof of income.One of the reasons to apply for a personal loan with a co-borrower is to help improve your chances of getting approved for a lump sum of financing that can go toward almost any personal expense. Borrowers, for example, may use personal joint loans to help pay for the costs of home renovation projects.

How Might a Joint Personal Loan Affect My Credit Score?

A joint personal loan can affect your credit score for better or worse depending on whether you or your co-borrower make on-time payments over the life of the loan. Making regular loan payments can build your credit history, and repaying the debt in full may bolster your credit score.Missing payments and defaulting on the joint personal loan can have a severe negative impact on the borrower’s and co-borrower’s credit scores. You may consider refinancing a personal loan if you cannot afford your existing repayment obligations.Lenders may conduct a hard pull inquiry on your credit report if you apply for a joint loan. The inquiry itself may cause your credit score to drop a few points. A hard inquiry can appear on your credit report for up to two years. Having six or more hard inquiries on your credit report can make it harder for you to qualify for new funding.

Pros and Cons of Choosing a Joint Personal Loan

Joint personal loans have several pros and cons as highlighted below:

Pros of Joint Personal Loans

Joint personal loans can help borrowers with lower credit scores secure financing, and they may come with higher loan amounts and better terms than non-joint personal loans. Joint personal loans can also help two borrowers build up their credit histories and may offer better terms and conditions than emergency personal loans.

Cons of Joint Personal Loans

Joint personal loans can increase your debt-to-income ratio and make it harder for you to borrow additional money during the life of the loan. Applying for these loans may also cause your credit score to drop a few points if the lender conducts a hard pull inquiry into your credit report.
Pros of joint personal loansCons of joint personal loans
May offer better terms and conditions than similar loans for solo borrowersMay increase your burden of debt
Can help you finance large expensesCan make it harder to get approved for new financing or additional credit accounts during the life of the loan
Can help build up your credit historyYour credit scores can drop if you miss payments or the lender pulls your credit report with a hard inquiry

Alternatives to Joint Personal Loans

Alternatives to joint personal loans may include solo personal loans with no credit check and other financing options as highlighted below:
  • No-Credit Check Loans: A no-credit check loan is a loan that you can get without undergoing a soft or hard credit check. An example may include short-term payday loans that provide up to $1,000 and charge high fees for every $100 borrowed. When weighing payday loans vs. personal loans, the latter may charge annual percentage rates of interest below 36%, while payday loans can have APRs exceeding 260%.
  • Car Title Loans:  If you own a vehicle and need quick cash, you may apply for car title loans as an alternative to joint personal loans. A car title loan is a collateralized loan secured by your vehicle. This loan works by allowing you to borrow against some of the equity in your car. Lenders of car title loans may seize your vehicle if you fail to make a required payment and default on your title loan.
  • Credit Cards: Using credit cards, including secured credit-building cards, may be an option for you. Every credit card account has a predetermined credit limit capping how much you can charge on the card. Cardholders are expected to repay their credit card debts over time and can make monthly payments that meet or exceed the minimum payment due.
  • Personal Lines of Credit: Borrowers may use a personal line of credit as an alternative to joint personal loans. Personal lines of credit allow borrowers to withdraw funds from the credit line up to a set limit for personal spending.
  • Cosigned Loans: A personal loan with a cosigner is a financial lending product in which an applicant applies for a loan with the assistance of a cosigner who shares the financial responsibility of repaying the loan. This is similar to a joint personal loan, but lenders may not require a cosigner to be related to the primary applicant by blood, marriage, or law.

Compare Personal Loan Rates and Apply Today

If you have weak credit and need to borrow money, a co-borrower or cosigner can help you get approved for new financing. The best joint personal loans for you may include joint personal loans online. Some consumers, however, may not have the ability or desire to get a co-borrower or cosigner in the first place.Lantern by SoFi can help you compare loan rates for non-joint personal loans. Just provide basic information about yourself and the loan you need, and Lantern can guide you in the process to apply for a personal loan with the lender of your choice.

Frequently Asked Questions

What is a joint personal loan?
Can two people take out a loan together?
Do you have to be married for a joint loan?
Who offers joint personal loans?
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About the Author

Sulaiman Abdur-Rahman

Sulaiman Abdur-Rahman

Sulaiman Abdur-Rahman writes about personal loans, auto loans, student loans, and other personal finance topics for Lantern. He’s the recipient of more than 10 journalism awards and served as a New Jersey Society of Professional Journalists board member. An alumnus of the Philadelphia-based Temple University, Abdur-Rahman is a strong advocate of the First Amendment and freedom of speech.
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