Joint loans explained
Joint loans can be a great solution if you’re struggling to borrow money alone, want to borrow a larger sum than you could borrow as a sole applicant or to share the cost and responsibility of the loan repayments.
Like all types of borrowing, there are various pros and cons of getting a joint loan and below, we answer all your joint loan FAQs and fully explain the benefits and risks of a joint loan, how to get and apply for one, how they can affect your credit score, and more!
What does a joint loan mean?
A joint loan means jointly and severally taking a loan out with someone else, typically a close family member, spouse, partner or friend, and can be a loan made to two or more borrowers that are both, or all, equally and legally responsible for repaying the entire loan amount.
How does a joint loan work?
When you apply for a joint loan, you combine credit scores and if one party’s score is low and another is good, you usually stand a much better chance of your application being accepted.
This is because a lender feels reassured that at least one of you is a responsible borrower and if one of you defaults on the loan and can no longer afford repayments, they can seek repayment of the whole amount from the other borrower.
Also, having two or more incomes generally means you can borrow a larger sum of money and will often be offered a lower interest rate.
Different types of loans you can jointly apply for include:
Secured loans (i.e. mortgages)
Joint current account overdrafts
Car purchase loans (less common)
What are joint loans used for?
Joint loans are very often used for larger, more expensive purchases such as:
Are you more likely to get accepted for a joint loan?
Yes, you are much more likely to succeed with a joint loan application because:
- Combined incomes are better than one: a collective income is going to be higher than a sole income and makes the lender feel assured that you’re less likely to default on payments.
- If one borrower defaults the other has to pay: if one party to a joint loan stops paying, then the lender can look to the other party/ies to pay the whole amount due.
- Joint loans for couples with bad credit are easier to get: if one party has a bad credit rating and another has a good to excellent credit score, then the party with bad credit is much more likely to succeed in borrowing money jointly whereas they would struggle to get a loan solely.
If you have bad credit and are struggling to get a loan, you might be interested to read: Guarantor loans explained
Can I get a joint personal loan?
Individual lenders can have more specific lending criteria but generally, you should be eligible to apply for most joint personal loans if you:
- are 18 years old or more
- are a UK resident
- have a British current account
- are not in full-time education
- haven’t had a recent credit application declined
- have a regular income
- have 3 years’ proof of address / are registered on the Electoral Roll
Who is the best person to get a joint loan with?
- Someone with a good credit score: if you apply for a loan with someone who has a poor credit history, then not only will your loan APR typically be higher (if your application is accepted), but you can also damage your own credit rating by having such a financial association and this could make borrowing difficult for you in the future.
- Someone who is financially responsible: remember that if the other borrower stops paying their share of the loan repayments, then you will be held responsible for paying the whole amount (i.e. their share of the repayments as well as your own). You will need to consider whether you would indeed be able to afford the full monthly loan repayments by yourself, should you have to.
- A close family member, long-term spouse or partner or friend: it would be very risky to take out a joint loan with someone you don’t know very well, haven’t known for very long or that you’re not sure you can trust. You need to make sure whoever you take out a joint loan with is close to you, trustworthy, has a secure job/income and is reliable. Bear in mind that if another borrower defaults and you end up solely responsible for a loan, it could irrecoverably damage your relationship with them forever. So, however close a relative or friend may be and however much you love them, if they do stuff like regularly scrounge money off friends and family, spend their entire payday at the bookies or in the pub, already have unmanageable existing debt or haven’t been in the same job for a couple of years or more, don’t do it!
How joint loans can affect your credit score?
- A joint loan will be recorded on your credit file and if the other borrower has a bad credit score, this unfavourable financial association could damage your credit rating and make future borrowing difficult or more costly with a higher rate of interest.
- If the other borrower defaults on repayments and you alone cannot solely afford to pay, then you could easily end up with a debt that spirals out of control and a default being recorded on your credit file. A default will severely damage your credit score and lending eligibility - lenders will consider you a credit risk.
- If you pay off the loan on time and in full, without ever missing a payment or paying late, then this should eventually have a positive impact on your credit rating which is very often initially lowered when you jointly apply with someone with bad credit.
- If you are a joint borrower with a poor credit rating, taking out a joint loan with someone who has a good credit history (and making sure you never miss a payment or pay late) will help to boost your own credit status and should elevate your score.
Applying for a joint loan
Before applying for a joint loan you should:
- check you meet the loan eligibility criteria
- check your credit report(s) and score(s)
- make sure you pay all your bills on time
- ensure you can afford the repayments
- reduce any outstanding debts
- close unused accounts or credit/store cards
- make sure you’re registered on the Electoral Roll
- have photographic proof of ID (passport or driving licence)
- have proof of address (bank/mortgage statement or utility bill less than 3 months old)
- have at least 6 months’ worth of bank statements
- have your last payslip(s), P60 or job offer/contract of employment (if you’ve changed jobs)
- have documentary evidence of any benefits income (if applicable)
- have documentary evidence of any pension income (if applicable)
- shop around and compare quotes from joint loan providers or use a credit broker
Note for Self-Employed workers: if you're self-employed - a sole proprietor, freelancer, partner or director, etc - you will need to provide proof of income for the last 12 months. This will typically need to be a copy of your Tax Return, an SA302 letter from HMRC or a completed certificate signed by your accountant.
Can you apply for a loan on a joint account?
Yes, you can apply for a joint loan on a joint account. In fact, many banks offering joint loans actually require both parties have an existing current account with them as part of their eligibility criteria.
You can of course also apply for a joint overdraft on a joint account but just like a joint loan, you could end up liable for your joint account user’s debt.