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Joint Loans - Overview

Borrowing With a Joint Loan

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Customer signing paperwork with bank manager
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A joint loan is a loan made to two or more borrowers. With more than one borrower, you have more income to pay the loan, and it may be easier to qualify for a large loan. In addition, additional borrowers may have better credit and more collateral to help you qualify.

Joint Loan vs. Co-Signing

With a joint loan and a co-signed loan, another person helps you qualify for the loan. They are responsible (as are you) for repayment, and banks feel more comfortable if there’s somebody else on the hook for the loan. This is the main similarity: both co-signers and co-borrowers are 100% responsible for the loan. However, joint loans are different from co-signed loans.

With a joint loan, every borrower is most likely (but not always) an owner of whatever you buy with the loan. A co-signer is generally not an owner, so they take all of the risk without any benefit of ownership. Co-signers do not have the right to use the property, benefit from it, or make decisions regarding the property.

Relationship Matters

The relationship between borrowers may be important when applying for a joint loan. Some lenders only issue joint loans to people who are related to each other by blood or marriage. If you want to borrow with somebody else, be prepared to hunt a little more for an accommodating lender. Some lenders require unrelated borrowers to apply individually -- which makes it harder to qualify for large loans.

If you’re not married to your co-borrower, be sure to put agreements in writing before buying expensive property. In the unlikely event of divorce, court proceedings tend to do a thorough job of dividing assets and responsibilities; informal separations can last longer and be more difficult if you don’t have agreements in place.

Is a Joint Loan Necessary?

Remember that the main benefit of a joint loan is that it’s easier to qualify for loans when by combining income and credit scores. You may find that you don’t need to use a joint loan if one borrower can qualify individually. Both of you (or all of you, if there are more than two) can pitch in on payments. You might even be able to put everybody’s name on a deed of ownership -- even if one of the owners does not borrow as part of a joint loan.

Of course, it may be impossible for one person to qualify for a large loan. Home loans, for example, tend to be so large that one person’s income will not satisfy a lender’s desired debt to income ratios.

Responsibility and Ownership

Before deciding to use a joint loan (or not), make sure you understand what your rights and responsibilities are. Get answers to the following questions:

  • Who is responsible for making payments?
  • Who owns the property?
  • How can I get out of the loan?
  • What if I want to sell my share?
  • What happens to the property if one of us dies?
It may not be fun to consider everything that can go wrong, but it’s better than being taken by surprise. For example, co-ownership is treated differently depending on the state you live in and how you own the property. If you buy a house with a romantic partner, both of you may want the other to get the home at your death -- but ownership laws may say that the property goes to the decedent’s estate (and without valid documents to say otherwise, the family of the deceased may become your co-owner).

Getting out of a loan can also be difficult (if your relationship ends, for example). You can’t just remove yourself from the loan -- even if your co-borrower wants to get your name removed. The lender made the loan based on a joint application, and you’re 100% responsible for repaying the loan. In most cases, you have to refinance a loan or pay it off to put it behind you.

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