Nowadays many people are opting out of joint debt or loans. Two persons together might be able to borrow more money. But it’s a serious step because each of them could be asked to repay the full debt if the other person can’t.
What types of loans and debt can be taken out jointly?
Many different types of loans and debt can be taken out jointly listed below:
- Secured loans – such as a mortgage
- Joint bank accounts – which have an overdraft facility
- Unsecured loans – such as a personal loan from a bank or other lender
Joint and several liabilities
Anyone can have confusion about joint loans or debt which they are opting for with someone else. One thing for them is that one person is only responsible for the ‘half’ or share. But it’s not the fact.
By signing a credit agreement (a contract) for a loan or overdraft with someone else, you’re each agreeing to pay off the whole debt if the other person can’t or they won’t be able to pay.
This is called joint and several liabilities.
Are credit cards taken out jointly?
Credit cards can’t be taken out jointly, even when you and your partner each have a credit card.
There’s always one person, the main cardholder, who’s signed the agreement. This means the person who is signing the agreement is responsible for paying off the debt in full.
But the main cardholder may allow someone else to have a credit card on the same account. This secondary cardholder doesn’t have a legal responsibility to make any payments to the credit card company.
Can a joint loan improve your chances of getting credit?
Applying jointly for a loan can somehow increase your chances of getting good credit.
However, the person should avoid applying together if one of them has a poor credit rating.
Once the person has a joint debt with someone, your credit file will be linked to each other.
This means that if the person wants to apply for a loan in their name in the future, the lender would be able to see the other person’s credit history and take that into account as well as your own.
It’s a good idea for both people to check the credit rating before taking out any joint credit or loan.
FAQ regarding taking a joint loan
How do I take my name off a joint loan?
If anyone wishes to remove a co-applicant’s name from a joint loan, they need to ask the lender for a novation. The original loan will then be substituted for a new one, in the name of the person who will take complete financial responsibility for the loan or credit.
How do joint credit scores work?
When two people apply for a loan together, the lender looks at both of their scores. Even if one person’s score is good enough, their partner’s low score can disqualify them.
Can two sisters apply for a joint loan?
No, banks do not consider sisters as co-applicants. This is to avoid legal complications post their marriages.
