You can take out a mortgage with another person, secure auto financing or even get a credit card together, but if you want to take out a personal loan with your spouse or partner, you’ll need to ask the lender if it allows joint borrowers.
What is a joint borrower?
When 2 or more people apply for credit together and use their income and credit history to qualify for a loan they are called joint borrowers or co-borrowers. Spouses or partners may apply jointly in an effort to get a larger or cheaper loan than they would qualify for individually or — with a look to the future — to help boost their partner’s credit score with a record of timely payments.
Bankrate reviewed the personal loan applications of nearly a dozen banks and credit unions. In each instance, the institution allows for joint applications on personal loans. But a number of online lenders explicitly forbid co-borrowers.
This may be an important consideration for people with damaged credit.
“Often a (joint borrower) can make the difference between getting approved and getting rejected,” says Bruce McClary, vice president of public relations and external affairs with the National Foundation for Credit Counseling. “Taking on a (co-borrower) can not only help you get approved when otherwise you might not, but you might also qualify for better rates.”
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Saying ‘yes’ or ‘no’ to co-borrowers
Online lenders Avant, CommonBond, LendingPoint and Prosper all confirmed they do not allow joint borrowers. Another lender, SoFi, notes in an online FAQ that it doesn’t allow more than one person to sign for a loan.
Among the other major online lenders, Bankrate found that both Lending Club and LightStream, the online lending arm of SunTrust Bank in Atlanta, allow co-borrowers.
“If joint applications help people meet our lending criteria, we’re happy to approve them,” says Julie Olian, a LightStream spokeswoman.
Lending Club, one of the big marketplace lenders, began allowing joint applications in October 2015 for “certain” borrowers. On its website, the company indicates that credit scores, credit history and debt-to-income ratio, or DTI, among other factors, will be considered in deciding qualification.
What is debt-to-income ratio (DTI)?
DTI = monthly debt payments / gross monthly income
Lenders use this ratio as a way to measure your ability to repay. In the case of Lending Club, it requires a smaller DTI for joint applicants.
“If joint income is considered for purposes of joint loan application approval, the maximum joint DTI ratio for the approval of such loans is 35% (versus 40% for individual application loans),” according to the Lending Club website.
Lending Club did not respond to a request for comment, but in an interview last year with Lend Academy, an online guide to marketplace lending, the company said borrower demand led to the introduction of joint applications.
“This is first about fulfilling a top customer request and enabling us to grant slightly larger line sizes through the commitment of 2 incomes liable for the loan,” Lending Club said.
Another online lender, CommonBond, has had a different experience with regard to joint applicants.
“It’s not something we see demand for,” says Phil Degisi, the chief marketing officer for the firm, which refinances and consolidates student loans.
Dangers of joint borrowing
Taking out a loan with another person has its potential pitfalls, though. You may get a bigger loan using your combined resources, but you’re also both equally responsible for repaying the loan. If one of you loses a job or refuses to pay, the other borrower will have the burden of making the monthly payment.
“All the responsibility falls into your lap,” McClary says.
Before signing on to any loan with another person, you need to talk about the responsibilities and expectations each person taking on the loan has, he says.
“If it’s at all avoidable and you’ve got good credit, I would suggest people find their way around these situations,” McClary says.
Deciding whether to seek a joint loan may also come down to what the loan will be used for, says Joe Heider, financial adviser and president of Cirrus Wealth Management in Cleveland.
On cars, Heider recommends that couples take out loans individually. But when it comes to loans tied an asset like a house, he sees it differently. This includes personal loans that will be used for home renovations.
“In most cases, I would recommend they take it out jointly,” he says. “The debt really ought to follow the asset.”