What is a joint personal loan?

What is a joint personal loan?

A joint personal loan is one you take out with another person, such as a partner, family member, or friend. The two people listed on the loan are referred to as ‘co-borrowers’, meaning both people are equally responsible for repaying the debt. This means if one person can’t make repayments, the other person will need to meet them, or both will face consequences.

This is different to a guarantor personal loan, where someone (generally a parent, family member, or partner) agrees to repay the loan should you be unable to meet the repayments.

What are some of the features of joint personal loans?

Joint personal loans will have much of the same features of regular personal loans. You can generally choose from:

A fixed or variable rate

A fixed-rate joint personal loan will have the same interest rate throughout the loan term, whereas a variable rate can go up or down, depending on market forces.

Fixed-rate loans offer certainty, as your regular repayments will generally be the same over the loan term. 

Repayments on variable-rate loans can change, so they may be harder to budget for. These loans make up for this by offering useful extras, like redraw facilities or options to help you pay down the loan faster.

A secured or unsecured loan

You’ll also usually be given the option to secure your joint personal loan.

When taking out a secured personal loan, you’ll need to provide an asset as security. For example, new car loans are often secured by the vehicle being bought. If you take out a secured loan but find yourself unable to repay the debt, your lender can repossess the asset to recover the remaining loan balance.

Unsecured personal loans don’t require an asset as a security, and will generally come with higher interest rates as a result, as lenders view them as riskier. If you and your co-borrower are unable to pay back your unsecured loan, your lender may take you to court to recover the money still owed. 

What can you use a joint personal loan for?

You can use a joint personal loan for the same purposes as a standard personal loan, including:

• Purchasing a vehicle
• Paying for your wedding
• Funding a holiday together
• Renovating your home
• Covering medical expenses
• Consolidating your debts into a singular loan.

Why take out a joint personal loan?

Joint personal loans can potentially give you access to a larger loan amount, as two people will generally have more borrowing power than an individual.

It may also be seen as a less risky loan to a lender, as if you’re both employed you’ll have two incomes paying back the loan. This can be helpful if the unfortunate happens and one borrower can’t work or becomes unemployed.

What are the risks of a joint personal loan?

Getting a loan with another person involves sharing financial responsibility. This could put a strain on your relationship, and crucially, it could also have financial consequences. 

If your co-borrower is unable to make repayments, vanishes, or refuses to make their repayments, you will be responsible for continuing to pay off the loan. If you don’t, the lender can choose to chase one or both of you for the whole amount and can take one or both of you to court. Your credit score could also be negatively impacted as a result, which can affect your chances of getting approved for a loan in the future.

It’s important to think about the person you’re applying for a joint personal loan with. Are they reliable, or do they have a history of managing their money poorly? If they’re your current partner, are you likely to be with this person for the duration of the loan? Depending on your circumstances, there may be many different factors to consider before you commit to a joint personal loan.

How do you apply for a joint personal loan?

Applying for a joint personal loan is similar to applying for a standard one. Both co-borrowers need to provide personal and financial details to the lender, including details of income, expenses like rent, utility bills, and groceries, and other debts. The lender will then assess you together as one application instead of two. This means you’ll both need to meet the eligibility criteria.

What documents do you need to apply for a joint personal loan?

Generally, when making a joint application you’ll both be expected to supply:

• Forms of photo ID like a passport or drivers licence, and supplementary ID like a Medicare or bank card
• Bank statements to show your expenses and saving habits
• Recent payslips or tax returns (if self-employed)

Checking your credit score, and asking your co-applicant to do the same, may also be helpful before you speak to prospective lenders. This can give you a better idea of how likely you are to be approved, as well as what kind of interest rate and loan terms you may be offered.

You can check your credit score for free with Canstar or via the Canstar App.

What are some pros and cons of joint personal loans?

Pros

• Applying together potentially increases your chance of approval
• You may be approved for a larger loan amount
• Could be helpful if you’re using the loan for a shared asset or expense like a car or your wedding

Cons

• You have to rely on the other person’s ability to make repayments alongside yours
• You can be liable for repaying the whole loan if the other person fails to make their repayments
• It may impact your relationship with your co-borrower

Who can I apply for a joint personal loan with?

You can apply for a joint personal loan with anyone as long as they consent to providing their personal and financial details as part of the application process and understand their commitment to the loan. This could be a parent, sibling, family member, partner, or friend.

Will a joint personal loan affect my credit score?

As with any form of credit, a joint personal loan has the ability to affect your credit score. It may also affect the credit score of your co-borrower as well. If there are any problems with repaying the joint loan, both borrowers will be affected—even if it’s only the fault of one person.

If you run into problems with your co-borrower, the Australian Securities and Investment Commission (ASIC) recommends seeking legal advice to ensure that you’re protected. Free, confidential, independent financial counselling is also available in Australia through the National Debt Helpline (NDH) via its website or on 1800 007 007.