What is joint borrowing?

Joint borrowing is the process of making a loan or other form of financing with another person, often called a co-borrower. While joint borrowing offers benefits, such as potentially qualifying for a broader network of financing options and receiving competitive interest rate offers, it comes with significant risks.

The biggest risk that joint borrowers assume is that they are contractually responsible for repaying the entire outstanding loan or debt. If you’re interested in this option, you need to know how joint lending works and whether it’s worth exploring in your situation.

What joint borrowing is

If you don’t meet the loan application requirements or want to qualify for a better interest rate, you can borrow the money jointly with someone else in a process called joint borrowing.

If your application is approved, the joint personal loan or credit card will be held in both your names and you will both be legally responsible for repaying the debt. Joint borrowing can also have an impact – both negative and positive – on both your credit reports and scores based on your repayment history.

How joint borrowing works

To take out a loan together with someone else, start by looking for a lender that allows joint borrowing. Although joint personal loans are common in the mortgage and auto loan industries, finding lenders that allow joint applications for personal loans and credit cards can be more challenging.

Once you have found a lender, you can submit a joint credit application. The lender or credit card company will probably ask you to provide some general information, both for yourself and for your co-borrower, such as:

• Personally identifiable information (names, social security numbers, dates of birth, etc.)
• Employment history (per person)
• Annual or monthly income (per person)

From there, the lender will likely check your credit reports and credit score in a process called a hard credit check. After you do a hard check, your score will drop a few points, but with a positive repayment history, it’s quite easy to bring the score back up.

Depending on the loan, the lender may also assess your debt-to-income ratio (DTI), the discretionary income left after you divide your monthly debts by your annual gross income. Ideally, most lenders prefer a DTI of less than 36 percent for approval, so check to see if your co-borrower meets the lender’s DTI requirement if yours is on the higher side.

Why choose a joint loan?

In some cases, applying for a loan from someone else can help you qualify for financing when you wouldn’t qualify on your own. For example, joint personal loans are quite common among couples when one person has lower credit or when two incomes can help the couple qualify for a larger loan amount.

If you apply for a joint loan with someone with excellent credit, you may also be able to obtain lower interest rates or better terms. This is one reason why parents can apply for a joint personal loan with their children, as joint borrowing can be an effective way to help your child build credit for the first time.

However, co-lending does come with risks, so you may want to consider other options first. For example, adding your child as an authorized user to your credit card can be an alternative to helping him or her build credit. When you can qualify for a loan without your partner’s income or credit history, it’s usually better to remain independent to avoid potential financial damage down the road if you separate or divorce.

How does a joint loan affect my credit score?

When you borrow jointly with someone else, the account may appear on your three credit reports and on your co-borrower’s credit reports, depending on the lender’s credit reporting policy. Any loan that requires a hard check has the potential to lower your score, so you’ll want to avoid multiple hard checks in quick succession.

Lenders can interpret multiple checks within a short period of time as a credit risk, making it more difficult to get approved for a loan. Additionally, a hard check can remain on your report for two years, regardless of your repayment history.

Late payments on a joint account can also hurt your credit scores. Because the majority of your credit score (35 percent of your FICO score) is your repayment history, it’s important to manage your monthly payments well.

Can you use your partner’s income to take out a personal loan?

You can use your spouse’s income to get a personal loan, but he or she must be listed as a co-applicant. Only your personal income can qualify for a personal loan, without including your spouse as a co-applicant.

Joint Loan vs. Cosigned Loan

Joint borrowing and co-signing may seem the same at first glance. However, these two ways of borrowing work differently.

During joint borrowing, both parties share ownership of the funds and assets from the loan. A cosigner will not share any legal claims over the funds and assets of the loan. Additionally, a cosigner may only have to make payments on the loan if the primary borrower defaults.

The main point of a cosigner is to provide some additional support to help the primary borrower secure the loan. The cosigner’s income is also typically not considered in addition to the primary borrower’s income. On the other hand, joint lending assures the lender that multiple sources of revenue are going toward the payments.

Advantages and disadvantages of joint borrowing

Every loan should be taken with some consideration, but it is even more important to weigh the pros and cons before taking out a joint loan.

This way you know whether joint borrowing is a good idea for you

It’s generally best to avoid co-borrowing (and co-signing) whenever possible. If you are considering a joint loan, ask yourself the following questions first:

• Can you or your potential co-borrower qualify for the loan without adding the other as a co-borrower? If so, there may be little benefit in opening the account together.
• Is a co-borrower obliged to share ownership of an asset (such as a house or car)? A joint loan may not be your only option. You can talk to an attorney to ensure that both names appear on the property title, even if only one person is taking out the loan.

Of course, it may sometimes be necessary to borrow jointly to qualify for the money you are looking for. Depending on your situation, you may not qualify for the payments on a large renovation loan or mortgage based on your income alone. If you decide to co-borrow with someone else, make sure you understand the risks before you sign on the dotted line.

Personal loan providers that offer joint loans

If you are considering a joint personal loan, some online lenders accept this financing option. Here are some lenders to look at:

• CreditClub: When checking your rate, select the “Two of Us” option to indicate that you plan to explore joint loan offers. To get started, you’ll need to provide information about yourself and your co-borrower.
• SoFi: Another financing option is through SoFi, which offers a personal loan for joint borrowers. Processing a loan application with a co-applicant may take one to two weeks longer.
• Bloom: This lender requires individual borrowers to have a minimum credit score of 560 to qualify for a personal loan. However, if you don’t meet this qualification, you can apply with a co-borrower with strong credit.

Next steps

Before you borrow, it’s important to do your homework, just as you would with any other type of loan. You can start by checking your three credit reports for errors. Ideally, both you and your co-borrower go through this step.

Then take the time to purchase loans from multiple lenders. Compare interest rates, fees, repayment terms and anything else that could affect the cost of your joint loan or the size of your monthly payments. Once you and your co-borrower have all the information, you can choose the best loan for your situation.