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

A joint personal loan is an installment loan for two people. The borrower and co-borrower assume the financial responsibility for repaying the debt under the terms and conditions of a loan agreement. Both borrowers can receive a lump sum of money into a shared bank account.

Borrowers and co-borrowers can submit a joint application for a personal loan. Lenders may check the creditworthiness, income, and debt-to-income (DTI) ratios of both applicants when deciding whether to approve or deny the joint loan request. Below are more details about joint personal loans and their pros and cons.

Key Points

• A joint personal loan gives co-borrowers equal rights to the loan funds, and both share equal responsibility for paying back the loan.

• Borrowers can submit a joint application online, and if their loan is approved, they agree to its terms and conditions.

• A joint personal loan is different from a cosigned loan in that both borrowers act as joint applicants, and lenders may require them to be related by blood or marriage. 

• Joint personal loans can affect your credit score negatively or positively; making on-time payments over the life of the loan can build the credit scores of both borrowers.

• The pros of this type of loan include potentially helping borrowers with lower credit scores secure financing and obtain higher loan amounts and better terms.

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 into a joint bank account that the borrower and co-borrower share. Both parties assume the financial responsibility of repaying the loan.

Lenders typically consider closely linked applicants who share finances, such as domestic partners, spouses, or other members of the same household, for joint personal loans. 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 a co-borrower equal access to the funds. Both parties can submit a single, joint application, often online, for a personal loan. 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 DTI ratio measures your ability to afford new debt without defaulting on your existing obligations. This is calculated by dividing your total recurring monthly debt payments by your gross monthly income. Most lenders like to see a DTI below 36%.

Both the 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. The terms and conditions of a joint loan agreement apply equally to both parties.

Failing to pay and defaulting on a personal loan with your co-borrower can have a major impact on both parties’ 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. The remaining borrower can request a loan modification if they have difficulty repaying the loan.

The terms and conditions of a joint personal loan generally can’t 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 for the loan.

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

Joint personal loans differ from cosigned loans in several ways. The table below outlines their similarities and differences:

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. Co-borrowers can apply for a joint loan together, using the strength of their combined incomes to increase borrowing power. This may 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 the co-borrower may qualify for lower interest rates and higher loan amounts by getting a joint personal loan vs. one of them getting an unsecured personal loan. A joint personal loan can benefit both the borrower and co-borrower by allowing them to diversify or build 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. The funds can go toward almost any personal expense, including 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 makes 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 the credit reports of both applicants for a joint loan. These inquiries 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 multiple 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 nonjoint 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 DTI 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.

Alternatives to Joint Personal Loans

Alternatives to joint personal loans may include solo personal loans with no credit check and the following financing options:

• 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 (APRs) of interest below 36%, while APRs for the former typically average 400%.

• Car title loans: If you own a vehicle and need quick cash, you can apply for car title loans as an alternative to joint personal loans. A car title loan is a collateralized loan secured by your vehicle. It allows 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: Credit cards, including secured credit-building cards, are another option. Almost every credit card account has a predetermined credit limit, capping how much you can charge on the card at any given time. 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. It enables you 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 the cosigner to be related to the primary applicant by blood, marriage, or law.

The Takeaway

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 options available through online lenders. Some consumers, however, may not have the ability or desire to secure a co-borrower or cosigner when seeking loans.

Lantern by SoFi can help you compare loan rates for nonjoint personal loans. Just provide basic information about yourself and the loan you need, and Lantern can guide you in the process of applying for a personal loan.