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Taking out a joint loan
Many people decide to take out a joint loan together, and it’s especially common amongst couples. You don’t have to be in a relationship, married or in a civil partnership with the other person, but applying for a joint loan is not something to be taken lightly – so make sure it’s someone you trust.
Although applying jointly for a loan may allow you to borrow more than if you had applied on your own, there are a few other things to be aware of. For example, you are responsible for repaying the whole of the loan should the other person fail to repay.
What types of credit are available to take out jointly?
Some of the different types of credit agreements you might be able to get jointly include both secured loans – like a homeowner loan or a mortgage – and unsecured loans (also known as personal loans). These aren’t the only options for joint credit – applying for a joint bank account with an overdraft facility is also a joint credit agreement.
When it comes to credit cards, however, you won’t be able to apply for these jointly. Although you may have a secondary credit card your partner uses, the main cardholder (the person that signs the credit agreement) is entirely responsible for repaying the balance.
How does it work?
When taking out a joint loan, both of you will need to sign the credit agreement and you will be “jointly and severally liable” for the debt, which means that both of you are liable for the full amount you’ve borrowed (rather than half each). When it comes to a joint bank account, generally both of you will be able to spend without requiring authorisation from the other – but it is possible to set up an account where you both have to agree on withdrawing money first.
Owing money jointly could cause problems if your relationship breaks down. Regardless of whether you are partners or just friends, the consequences can be hard-hitting if one of you stops repaying.
For instance, it’s easy to assume that you’ll only be responsible for one half of the loan, however this isn’t the case. In your contract, you’ll both be agreeing to repay the entirety of the balance if the other person either can’t or won’t. Unfortunately whether you spent the money yourself, or whether you even own the items bought with the cash doesn’t matter – you can be held liable to pay if the other person can’t or won’t.
That’s why it’s important to think about what would happen in the unfortunate event that you and your partner break up, or should one of you pass away. The entire repayment may fall to you should either of these events happen.
Joint credit and your credit history
In some cases, applying for credit together with someone else may increase your chances of being accepted. For example, if your partner has an excellent credit score, whereas you have a limited history of borrowing, you may be more likely to be accepted for credit if you apply together.
On the other hand, applying for any form of joint credit means your credit histories will be linked to one another. This means that if you apply for credit in future, lenders will be able to see their name on your credit report and they may judge future decisions as to whether or not to lend to you on both their credit history as well as yours. So, it makes sense to think carefully before applying for credit jointly with anyone, as if one of you has a poor credit history, it’s likely to affect the other person too. If you and an ex are no longer connected, it is possible to separate your credit histories again once you’ve paid off what you owe – this is called a notice of disassociation.
It’s always sensible to check your credit history before applying for any form of credit whether singly or jointly. You can do so by using one of the three credit reference agencies Experian, Equifax or CallCredit – or the free services Noddle and ClearScore.