What Is a Joint Loan? And How Do They Work?

Written by Kim PinnelliReviewed by Nathan Brown, CFP®Updated: 11th Apr 2022
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A joint loan is a loan with two applicants who have equal responsibility for the loan. It is a situation that often makes sense, but it’s important to know how they work and what you should consider before taking one.

What Is a Joint Loan?

A joint loan is a loan with two applicants. Both parties have equal rights to the loan funds and are legally liable to pay the loan back. A joint loan affects both applicants’ credit scores too.

How Do Joint Loans Work?

To apply for a joint loan, you must first find a lender that allows them. For example, if you’re applying for a personal loan, not all lenders allow joint applicants. If you’re applying for a mortgage or car loan, though, most lenders allow joint applicants.

You’ll apply for the loan together, providing personal and financial information for each borrower. The lender will pull both borrowers’ credit and look at your total income and debt-to-income ratio to decide if you qualify.

If approved, both applicants go on the loan and must make the payments. The loan also gets reported to the credit bureaus in both names.

How Do Joint Loans Affect Credit?

Joint loans are reported to the credit bureau for both parties. Even if one party is responsible for payments and doesn’t make them, both applicants’ credit scores suffer.

The same information gets reported to the credit bureaus for both parties, whether that means on-time payments, late payments, overextended credit, or a defaulted loan. It’s important for both parties to be on the same page and to be able to afford the loan to qualify.

Who Is Liable for a Joint Loan?

Both the applicant and co-applicant are responsible for the joint loan. If one party doesn’t make the payment, the other should, or it can ruin their credit. Lenders can come after both parties for non-payment.

Joint vs. Co-Sign Loan: What Are the Differences?

You might think that a joint loan and co-sign loan are the same thing, but they only have one thing in common: two applicants.

Before taking on either a joint or co-signed loan, you should understand the differences.

Joint Loans

A joint loan has what’s called co-borrowers. You are both equally liable for the payments and have equal rights to the loan’s funds. Both applicants also have rights to the property that the loan is for, and if there is a title, both names go on it.

Co-Signed Loans

A co-signed loan is a loan for a primary applicant who might not qualify for the loan alone and needs the help of someone with better credit or a lower debt-to-income ratio. Co-signers don’t have any rights to the loan funds or the property. They are there to help the applicant get approved. However, co-signers become liable to pay the loan if the applicant can’t.

How to Get a Joint Loan (Step-by-Step)

#1. Check with Your Partner

Before applying for a joint loan, talk to your partner about qualifying factors. Make sure you’re open with one another about your credit scores and existing debt if you haven’t already. Both parties should be on the same page before applying for the loan since you are both liable for the payments, and it can affect your credit if you default.

#2. Review Eligibility Requirements

Look at the eligibility requirements by the lender because each lender wants different things. Some lenders take the lowest credit score among the two borrowers for qualifying, and others use only the credit score of the primary applicant.

Also, look closely at the debt-to-income ratio requirements and any other requirements the lender may have to make sure you meet them.

#3. Pre-Qualify for a Joint Loan

Before you formally apply for a loan, consider getting pre-qualified by several lenders. This allows you the chance to see what options you have.

#4. Compare Joint Loans

Take the time to compare joint loan options from several lenders. For example, one lender may charge a lower rate but higher origination fees. You can compare the monthly costs and the loan’s total cost to decide which one is right for you without hurting your credit score. It doesn’t affect your credit score until you choose a loan and formally apply for it.

>> More: See the Best Personal Loans

#5. Make Sure You Can Afford the Joint Loan

Once you know the monthly payment amount, see how it fits your budget. It might sound like a good deal at first, but once you plug it into your budget, you might find that things are a little tighter than you thought.

Only take a loan that you know you can afford, or you risk ruining your credit.

#6. Apply for the Joint Loan

When you’ve chosen your lender, apply for the loan. When you apply, ensure that you check the box that you have a joint applicant and provide information for both parties.

Pros and Cons of Joint Loans

Pros:

  • It’s easier to qualify: When you have another party on the loan with you, the lender looks at both of your qualifying factors, which helps if your joint applicant has good credit or a low debt ratio and can offset any ‘bad factors’ you bring to the table.
  • You might be able to afford more: Since lenders look at your debt-to-income ratio, bringing another person with income onto the loan can help you afford a higher loan amount.
  • You’re both responsible for the payment: You have someone to help you cover the monthly payment to repay the loan with a joint applicant.

Cons:

  • Your credit score can suffer: If you aren’t in charge of the loan payment and your joint applicant doesn’t make the payment, your credit score will be affected.
  • A joint applicant can make it harder to qualify: If your spouse or significant other has a lower credit score or higher DTI than you, they could make it harder to qualify for the loan.
  • It could be hard on your relationship: If you fall behind on the loan or one applicant slips up and doesn’t make a payment, it could damage the relationship since it affects both people’s credit.

Can I Get My Name Taken Off a Joint Loan?

Unfortunately, it’s not easy to get your name taken off a joint loan. The lender approved the loan with both applicants’ information. The only way to get your name off of it is to refinance, although some lenders will consider removing one applicant if the other can prove they can afford it.

>> More: How to Refinance a Personal Loan

Are Joint Loans Safe?

Joint loans can be considered safe if you are both on the same page. You are both liable for the debt, so make sure it’s something you can both comfortably afford, and one party isn’t taking advantage of another.

>> More: Understanding the Different Types of Personal Loans

When Does a Joint Loan Make Sense?

A joint loan makes sense when you’re married, and both have good credit and income. This makes both of you liable for the loan, not putting the stress on one person. It’s also a good idea if you can’t qualify for a loan yourself because you don’t make enough money, or your credit score isn’t high enough.

Bottom Line: What Is a Joint Loan?

A joint loan is a great way to increase your chances of approval for a loan or to get financing with your significant other. Make sure you’re aware of the consequences of a joint loan and that both applicants bring something ‘good’ to the table to help with qualifying.

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Kim Pinnelli
Kim Pinnelli

Kim Pinnelli is a Senior Writer, Editor, & Product Analyst with a Bachelor’s Degree in Finance from the University of Illinois at Chicago. She has been a professional financial writer for over 15 years, and has appeared in a myriad of industry leading financial media outlets. Leveraging her personal experience, Kim is committed to helping people take charge of their personal finances and make simple financial decisions.