What is a joint personal loan?

What is a joint personal loan?

A joint personal loan is a loan 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 loan. This means if one person can’t make repayments, the other person will be responsible.

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

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Why take out a joint personal loan?

There are various reasons why a joint personal loan could be appealing. For example, you might be interested in sharing an asset (such as a car) with your family member, or you could be funding a joint expense (such as a wedding or holiday) with your partner.

Joint personal loans can also potentially give you access to a larger loan amount as two people will generally have more borrowing power than an individual. When you apply for a joint personal loan, the lender will consider the financial circumstances of both applicants, such as income, expenses and other debts, as part of its compliance with Australia’s responsible lending laws. This helps the lender determine whether you and your co-borrower would be able to service (pay back) the loan with associated interest.

What are the risks of a joint personal loan?

Getting a loan with another person involves sharing financial responsibility. If your co-borrower is unable to make repayments, vanishes or refuses to pay it back, you will be responsible for the repayments. If you don’t make the repayments, 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 to recover the money. Your credit score could also be negatively impacted as a result, which can affect your chances of getting approved for a loan or credit 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 poor history of managing their money? If they are 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 regular personal loan. Generally, both co-borrowers need to provide personal and financial details, which the lender will assess together as one application instead of two. This means you will both need to meet the eligibility criteria.

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

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

• Forms of photo identification (e.g. passport, drivers licence) and supplementary identification (e.g. medicare card or bank card)

• Bank statements (usually the last 90 days worth)

• 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, as it may 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?

If you’re considering a joint personal loan, here are some of the potential advantages and disadvantages:

Pros

• Potentially a greater chance of approval

• You may be approved for a larger loan

• Could be helpful if you’re using the loan for a shared asset or expense (e.g. a car or your wedding).

Cons

• You have to rely on the other person’s ability to make repayments

• You can be liable for repaying the whole loan amount 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 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 are protected. Free, confidential, independent financial counselling is also available in Australia through the National Debt Helpline on 1800 007 007.

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