How Do Joint Personal Loans Work?
A joint personal loan is simply a personal loan taken out by two or more borrowers, often called joint borrowers or co-borrowers. Joint borrowers apply for a personal loan together and are also responsible for repaying the loan.
Applying for a personal loan with another party can increase your likelihood of approval if you can’t qualify for a personal loan on your own. A joint personal loan may also give you better loan terms because the lender may feel more comfortable with two strong borrowers on a loan as opposed to one. For instance, you may receive a high loan amount, a lower interest rate or both with a joint personal loan.
How to Apply for a Joint Personal Loan
Not all lenders offer joint personal loans. If they do, there will be a place on the loan application where you can add the personal information of your co-borrower. Here are some additional tips for applying for a joint personal loan.
Find a Lender that Offers Joint Personal Loans
Your first order of business is to research lenders that will allow you to apply for a personal loan with another borrower. If you are having trouble finding a lender that offers joint personal loans, we’ll list a few options below.
Check Your Credit Scores
Once you narrow down a lender, you should take time to go over their lending criteria. Check for requirements such as minimum credit score, minimum income requirements and maximum debt-to-income ratio. You should do this, so you don’t risk a hard credit inquiry when the likelihood of approval is slim based on your credit profile.
Remember, lenders will consider the credit score of both loan applicants in this process. For this reason, both borrowers should have credit scores that meet the lender’s criteria. Otherwise, one applicant’s bad credit history could affect the loan’s approval.
Improve Your Credit Score
If you or your joint borrower don’t have good enough credit scores to get approved for a personal loan, then it makes sense to improve your credit score before applying. Improving your credit score is a smart move because most lenders will give you better loan terms if you have a higher credit score. Some things you can do to improve your credit score could include paying down debt and removing inaccurate items from your credit report like collection items or multiple hard inquiries.
Evaluate Your Budget
Once you’ve positioned yourself as a creditworthy borrower, it’s time to check out how a personal loan fits into your financial circumstances. Specifically, you need to know exactly how much debt you can afford, given your current financial obligations. Make sure to only borrow what you need and can pay back comfortably. To get an idea of the monthly payments on a certain loan amount and interest rate, consider using a loan calculator.
Check for Pre-approval or Pre-qualification offers
Chances are, you’ve already got a relationship in place with a bank or credit card company. In this case, they may have already pre-screened you for some personal loan offers. These offers may be sent via email or snail mail. A pre-qualified offer may mean you have a slightly better chance at approval versus completing an application with a financial company you’ve never worked with before.
Submit the Loan Application
Now that you’re confident about your credit score, have confirmed your ability to take on debt, and may (or may not) have a pre-qualification offered in hand, it’s time to submit your loan application. Depending on the lender, this can be done in person or online. If the lender will let you add a co-borrower to your personal loan application, make sure you have all the personal information required, such as photo ID, Social Security numbers, monthly gross income and current debt obligations.
Who Can Apply for Joint Personal Loans?
As mentioned, not all lenders let you apply for a personal loan with a co-borrower. If you don’t find traditional banks that offer joint personal loans, there are plenty of nontraditional options like online banks. Online banks may even offer lower interest rates, higher loan amounts, and faster approval/funds disbursement.
Some lenders that offer joint personal loans include:
- SoFi
- Lightstream
- LendingClub
- Upgrade
- FreedomPlus
SoFi
SoFi personal loans require an annual income of at least $45,000 and a minimum credit score of 650. You approval odds may be better if you’ve got an existing relationship with the company.
Lightstream
LightStream requires a minimum credit score of 660, and a credit history that goes back several years. Also, you should be prepared to prove that there’s enough income between you and your co-borrower to service your current debts and the personal loan you’re seeking.
LendingClub
Applicants for a LendingClub personal loan should have a credit score of 600 or above and a credit history of three years or more. Also, you should have a debt-to-income ratio of below 40%. For a joint personal loan, applicants should have a debt-to-income ratio of 35%. Note, having a co-borrower may increase your approval odds with LendingClub.
Upgrade
Upgrade is a good choice for borrowers with a fair credit score. The minimum credit score for applicants is 580. Upgrade has no set minimum income requirements. Applicants should have a pre-loan debt-to-income ratio maximum of 45%, excluding their mortgage. Note that the joint borrower must be a U.S citizen, 18 years or more, and meet the same credit score requirements as the primary borrower. The joint borrower does not have to share the same address as the primary borrower.
FreedomPlus
FreedomPlus personal loans are available to U.S. citizens except those in Iowa, Maine, Hawaii, Oregon, Colorado, Nevada, Kansas, Vermont, Wyoming, Rhode Island, Wisconsin, North Dakota, West Virginia, Connecticut, New Hampshire, and Massachusetts.
However, for joint personal loans, one applicant can live in the ineligible states mentioned. The joint borrower doesn’t have to live at the same address as the primary borrower. FreedomPlus has a minimum credit score requirement of 620. An even higher credit score will get you better terms and lower rates. The joint borrower has to be a citizen or permanent resident of the US and meet the 620 credit score minimum requirement.
Joint Borrower vs. Cosigner
Although terms like ‘joint borrower’ and ‘co-signer’ are thrown around interchangeably, they mean different things. Both terms involve two individuals in one loan application, however, there are some key differences.
A Joint Borrower
mentioned earlier, a joint borrower shares equally the loan amount and the responsibility to repay it. The joint borrower’s name is also on the loan agreement. This means that if you and your joint borrower get a loan, you both can access the loan funds and are both responsible to make the monthly payment.
Note that the loan will show on both borrowers’ credit reports. All loan activity (i.e., missed and on-time payments) by you or your joint-borrower affect both your credit scores. This means that on-time payments boost your and your joint borrower’s credit scores. Missed payments will also hurt both of your credit scores.
A Cosigner
A co-signer helps increase your chances of getting a loan by essentially lending you their good credit ratings. The co-signer has no access to loan funds. However, if you fail to repay the loan, the co-signer takes on the responsibility of repaying the loan.
The cosigner’s credit score is not affected by co-signing on a loan. However, if the borrower misses a payment or makes late payments, the borrower’s and the cosigner’s credit scores could be affected.
Key Factors that Affect Personal Loan Approval Chances
Credit Score
Your credit score reflects your credit history. Items like late payments or collection accounts can decrease your credit score. To lenders, a good credit score means that you pay your debt obligations on time and that you are a creditworthy individual.
Debt-to-Income (DTI) Ratio
Lenders also check your income to determine whether you can make your monthly payments on your loan. A high DTI signals to lenders that you have too many debt obligations in relation to your income and could be a credit risk.
Requested Borrowing Amounts and Repayment Period
Requesting a large personal loan could indicate to lenders that you are in financial distress, which they might perceive as a credit risk. You can request a lower loan amount on your application, then get rates for a high loan later.
When getting a personal loan, you should understand the loan terms, such as the length of the loan, the amount of interest you’ll be paying, fees (such as closing costs), and the amount of your monthly payment. Knowing this upfront can help you determine if the loan terms work for your personal financial circumstances.
