The Pros and Cons of a Joint Personal Loan

Group of multigenerational people hugging each others

You may be thinking of opening a joint personal loan with a friend, partner, or family member. This type of loan may seem like the golden ticket to completing a housing project, planning the wedding of your dreams, taking the lavish vacation you’ve always wanted, or starting a business.   

But there’s much to consider when taking out a joint personal loan. Not only will both borrowers get access to the money, but both borrowers will also be on the hook to repay the loan. There are a lot of pros and cons to consider.   

Whether taking out a joint personal loan is a good idea depends on how financially responsible both borrowers are. Here are the pros and cons of opening a joint personal loan to help you decide if it’s the right decision for you.   

Pros of joint personal loans 

A joint personal loan may be a great way to accomplish your money goals if the person you’re borrowing with has a good credit history and positive financial habits.  

Here are the benefits of joint personal loans: 

A lower interest rate 

If the other applicant has a better credit score than you, then you may receive a lower interest rate. 

For example, imagine that you and your partner are newly married and both have credit card debt. But one of you has a much higher interest rate. Consolidating the debt in a joint personal loan may help you both save money and pay off the debt faster. 

A higher loan amount 

If your co-borrower makes more money than you and can prove a steady income, you may qualify for a higher loan amount. This can be helpful if you can’t qualify for the amount you need on your own. 

Shared responsibility 

The responsibility of repaying a joint personal loan doesn’t fall squarely on one person’s shoulders. Instead, two people share the burden. If the other applicant has good financial habits, you can make a repayment plan together and hold each other accountable.   

For example, if you and your partner are planning a wedding, you may want to finance some expenses with a joint personal loan.

That way, you can have the wedding you’ve been dreaming of. Together, you and your partner can plan the event with a joint loan and make a repayment plan that fits your budget. 

Improved approval odds 

For individuals without a credit history or with poor credit (a credit score of 669 or lower is ‘fair’ to ‘poor’), getting approved for a loan can be difficult. Two incomes can increase your approval odds.  

If your co-borrower has a higher credit score than you, it could also increase your chances of getting the loan you need.  

Boost your credit score 

One way to improve your credit score is to co-borrow with someone who has a better credit score than you.

By doing so and ensuring that you pay off the loan on time, you can boost your credit score, which will make it easier for you to access better loan terms and interest rates in the future. 

Cons of joint personal loans 

Joint personal loans aren’t for everyone. If you or the co-borrower can’t repay, it can negatively impact you in many ways.  

Harm your credit score 

Say your co-borrower is unable to make their payments on time. Each missed payment may negatively impact both of your credit scores. 

Increase your interest rates 

Are you the person in the relationship with good credit? If so, adding a co-borrower with a lower credit score could hurt your interest rate. It may be worthwhile to compare prices between personal loans and joint personal loans to get the best rate. 

Both applicants must meet eligibility requirements 

If one borrower fails to meet requirements, both borrowers will likely not be approved for the loan. Also, some lenders might take longer to process a joint personal loan because there’s double the paperwork and information to verify. 

Can make it harder to get approved for other financing  

If someone asks you to co-borrow, consider your future financial plans before agreeing. While it may seem like a good idea to help someone with a joint personal loan, keep in mind that your debt-to-income ratio may prevent you from being approved if you have any major expenses coming up. 

Suppose your sister needs help covering some of her expenses. You may want to help. However, if you plan to buy a house in the next year, the current joint loan with your sister can increase your debt-to-income ratio by increasing the amount of debt you owe.

This can restrict you from accessing the price range of the house you want to buy. It could even prevent you from buying a home altogether. 

Should you take out a joint personal loan? 

Taking out a joint personal loan is a deeply personal decision that should not be made quickly. Consider the pros, cons and intentions of both parties involved before taking out a loan.

Who has the better credit? Are both individuals financially responsible and have a good credit history?

Most importantly, what plan is in place if someone needs off the loan? If the joint personal loan carries little risk and benefits both parties, it may be a viable option. However, if the cons greatly outweigh the pros, don’t let it sink your finances.

Frequently asked questions about joint personal loans 

What is a joint loan? 

A joint loan is a type of loan where two individuals apply for a loan together and are equally responsible for paying it back.

Joint loans are commonly used by couples or family members who want to share the burden of repaying a loan or who may not be able to qualify on their own.  

This type of loan can be used for various purposes, including debt consolidation, home renovations, or other personal expenses. Mortgages and auto loans are also examples of joint loans.  

It’s important to note that all parties involved in the joint loan are equally responsible for making payments, and if one person defaults on the loan, it can negatively impact the credit scores of all borrowers. 

Do you have to have collateral to open a joint personal loan? 

No, you often don’t need collateral to open a joint personal loan. This makes personal loans an ideal option for individuals without assets. Since no collateral is used, credit scores play a larger role in determining eligibility and loan terms.  

What is a co-borrower vs. a co-signer? 

A co-borrower is when two people take out a loan together and both have shared financial responsibility to pay it back. One person acts as the secondary on the loan to increase your chances of approval, usually because the other individual has a lower credit score.  

A co-signer is when two people agree to take on the financial responsibility of paying back a loan, but only the borrower has access to the money. Both people’s credit score can be impacted if the debt is not repaid promptly.

Written by Cassidy Horton | Edited by Rose Wheeler

Cassidy Horton is a finance writer who’s passionate about helping people find financial freedom. With an MBA and a bachelor’s in public relations, her work has been published over a thousand times online by finance brands like Forbes Advisor, The Balance, PayPal, and more. Cassidy is also the founder of Money Hungry Freelancers, a platform that helps freelancers ditch their financial stress.

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