Applying for a joint personal loan? Here's what you need to know

Sharing finances is a milestone some relationships decide is right for them. Pooling money can help provide accountability, with many Aussies splitting financial products like bank accounts, credit cards and home loans. So, why not share a joint personal loan ?

What is a joint personal loan?

As the name suggests, a ‘joint personal loan’ is shared between two people. These ‘co-borrowers’ apply and repay the loan together.

Depending on the lender, these loans can be used to cover a range of things from home renos and wedding costs to the purchase of a new set of wheels. While commonly people apply for these loans with their partners or spouses, in some cases you can also apply with a parent, sibling, family member or even a friend.

However, there are some benefits and risks to taking out a joint personal loan that are worth being aware of before you apply. It’s also important to keep in mind that each lender may have different eligibility criteria, so it’s crucial that both applicants meet what’s required.

What are the benefits of a joint personal loan?

• You may have a greater chance of approval: The financial history and credit rating of both applicants is considered for the joint loan. Meaning the lender assesses both co-applicants’ details to determine whether together you are fit to pay back the loan.

• You may be able to borrow more: In the same way, because both applicants' financial situations (like income and credit history) are taken into account, you may be eligible to borrow more than if you applied alone.

• You may be able to consolidate a bigger amount of debt: Debt consolidation loans can come in the form of joint loans. So if you and your co-borrower have debt to clear this may be a way to do it.

• Cover the cost of a shared asset: If you are covering the cost of a shared big purchase, a joint loan can be a good way to help both parties make regular repayments and stay on track to paying off the debt.

What are the risks of a joint personal loan?

• Relying on another person when it comes to repayments: The truth is, by entering into a loan with another person you are sharing responsibility and thus putting trust in someone to do half the job. The bad side of joint loans is if things go pear-shaped and the other person doesn’t pay down their share, which may mean you end up liable for the entire payment or even face legal action if the loan isn’t paid.

• You may over-borrow: Just because you can borrow more (in the eyes of your lender) doesn’t mean you should. Don’t just enter a joint loan for the sake of being able to get a larger sum if you and your co-applicant will struggle to pay it off.

• Your credit rating may worsen: Where you or your co-borrower miss repayments or default on your loan, it will negatively impact both your credit scores. As mentioned above, you are trusting someone else to make repayments to help keep both yours and their credit rating healthy.

• It may impact the relationship you have with your co-applicant: It’s no secret that money can ruin relationships, and joint personal loans are no exception. Before entering into the loan, ensure you have had the right conversations with your co-applicant and are confident you both understand the joint responsibility that comes with it. Also consider the financial situation of the person you may be entering this loan with - think of things like job security, financial history and even their credit rating.

Not sure if a joint loan is quite right but want to compare some personal loan options right now? Check out these picks below!