Joint personal loans: What they are and where to find them

Joint borrowing is the process of taking out a loan or other type of financing with another person as a co-borrower. Although a joint loan offers advantages, like potentially qualifying for a wider range of financing options and receiving competitive interest rate offers, it also has considerable risks.

The largest risk joint borrowers assume is being contractually responsible for repaying the entire loan or debt. If you are interested in this option, you should know how joint borrowing works and whether it’s an option that’s worth exploring in your situation.

What are joint personal loans?

A joint-application loan involves two borrowers who apply together and share equal access to the funds, if approved.

If your application is approved, a personal loan is issued in both your name and your co-borrower’s name, and you are both legally liable for repaying the debt. Joint borrowing can also have an impact — negatively and positively — on both your credit reports and scores based on your repayment history.

How joint loans works

When you apply for a joint personal loan with a co-borrower, a lender evaluates you and the other borrower’s credit and finances to see if you qualify. The lender will perform a hard credit check, which can temporarily lower both of your credit scores. If approved, you and the joint applicant will share responsibility for repaying the loan.

Depending on the loan, the lender may also review your debt-to-income ratio (DTI), your monthly debts divided by your annual gross income. Ideally, most lenders prefer a DTI under 36 percent for approval, so check to make sure your co-borrower meets the lender’s DTI requirement if yours is on the higher side.

How joint loans affect credit

When you co-borrow with another person, the account may show up on your three credit reports and your co-borrower’s credit reports, depending on the lender’s credit reporting policy. Any loan that requires a hard check has the potential to decrease your score, so you’ll want to avoid multiple hard checks in quick succession.

Lenders may interpret multiple checks within a short time as a credit risk, making it harder to get approved for a loan. What’s more, a hard check can stay on your report for two years, regardless of your repayment history.

Late payments on a joint account can also damage your credit scores. Because most of your credit score (35 percent of your FICO score) is your repayment history, it’s important to manage your monthly payments well.

Can you use your spouse’s income to get a personal loan?

You can use your spouse’s income to get a personal loan, but they often have to be listed as a joint applicant. If you don’t opt for a joint loan, most of the time only your income will be considered by the lender.

Joint borrowing vs. cosigning

Joint borrowing and cosigning may seem like the same thing on the surface. However, these two ways of borrowing work differently.

With joint personal loans, both parties share ownership of the funds and assets from the loan. A cosigner will not share legal claims over the funds and assets from the loan. That said, a cosigner is still responsible for payments. Typically, they’re not expected to make any unless the primary defaults, but they are still legally liable.

The main point of a cosigner is some added support to help the primary borrower secure the loan. The cosigner’s income is also not typically considered on top of the primary borrower’s income. On the other hand, joint borrowing assures the lender that multiple sources of income are going towards the payments.

When to choose a joint personal loan

In some cases, applying for a loan with someone else may help you qualify for financing when you wouldn’t be eligible on your own. For example, joint personal loans are fairly common among couples when one person has lower credit or when two incomes can help the couple qualify for a larger loan amount.

Applying for a joint loan with someone who has an excellent credit rating might also help you secure lower interest rates or better terms. This is one reason parents may apply for joint personal loans with their children, since joint borrowing may be an effective way to help your child build credit for the first time.

However, co-borrowing a loan should be done after considering the benefits and drawbacks.

Advantages of joint borrowing

• Better chance of qualifying (or securing a better deal): The right co-borrower could make a huge difference if you have bad credit or debt-to-income ratio challenges.
• Qualify for a larger loan amount: Adding a co-borrower’s income to your loan application can help you qualify for a higher loan amount.
• Build or rebuild your credit: A well-managed joint account could help you improve your credit history and scores over time.

Disadvantages of joint borrowing

• Potential to be liable for the full debt: If your co-borrower can’t or won’t pay, the lender will still expect you to do so, even in the event of a separation or divorce.
• Credit risk: A joint account might drive your credit scores downward if you fall behind on your payments.
• May be hard to qualify for new financing: A new joint loan increases the amount of debt you owe, raising your debt-to-income ratio. Even if the new account positively affects your credit score, it could reduce your borrowing capacity for future loans for a time.

Are joint loans a good idea?

If you’re considering a joint loan, ask yourself the following questions first to determine whether it makes sense:

• Can you or your potential co-borrower qualify for the loan without adding the other person as a joint borrower? If so, there may be little upside to opening the account together.
• Is a co-borrower required to share ownership of an asset, like a home or car? A joint loan might not be your only option. You can talk to an attorney about making sure both names appear on the property title, even if only one person takes out the loan.

Of course, sometimes joint borrowing may be necessary to qualify for the money you need. Depending on your situation, you might not qualify for the payments on a large home improvement loan or mortgage with your income alone. If you decide to co-borrow with someone else, just be sure you understand the risks before you sign on the dotted line.

Lenders that offer joint personal loans

If you’re considering a joint personal loan, a few online lenders accept this financing option. Here are some lenders to look into:

• LendingClub: When checking your rate with LendingClub, select the “Two of Us” option to indicate that you intend on exploring offers for a joint loan. You’ll need to provide information about you and your co-borrower to get started.
• SoFi: Another financing option is through SoFi, which offers a joint-borrower personal loan. Loan applications with a co-applicant can take an extra one to two weeks to process.
• Prosper: Prosper requires individual borrowers to have a minimum credit score of 600 to qualify for a personal loan. However, if you don’t meet this qualification, you can apply with a co-borrower who has strong credit.

Bottom line

Applying for a joint personal loan with someone with good credit and a solid income could help you qualify for more money and a better interest rate. However, before you apply for one, consider possible drawbacks, such as one party not paying their fair share of the loan.

If you do decide to move forward, discuss the repayment responsibilities and risks with your co-borrower. Also, make sure to compare personal loan rates and terms from as many lenders as possible to maximize your chances of getting the best deal.