Qualifying for a small emergency loan is not difficult at all. With some of the loans that do not even involve a credit check run, borrowing has become way easier and more flexible. There are some loans like mortgages, personal loans, and auto loans aimed at funding your large needs. Of course, lenders cannot be as flexible as they are when you apply for an emergency loan.
Unforeseen expenses can crop up at any moment, and most of the time, they need immediate attention; therefore, lenders speed up the application process, emphasising your repaying capacity rather than your credit score, but the scenario is not the same when you apply for long-term loans.
Mortgages, auto loans, and car loans carry huge borrowing sums, so your credit report and financial records will be thoroughly checked. No lender would ever risk lending you money if they suspect that you will not be able to repay. On the other hand, you will have to face the music with non-payments, too.
Qualifying for these loans is quite complicated when your credit score is too bad. You can be turned down, or if you get the nod, high interest rates will be charged. Here comes joint loans.
What are joint loans?
Joint loans are personal loans taken out by at least two people jointly who promise to pay back the debt partly or wholly in the event of default by the other partner. Joint loans increase your chances of securing a loan when any of you has a good credit score. While taking out a mortgage, you and your spouse will be putting in a joint application. However, it is not necessary to be a couple to apply for a joint personal loan.
These loans are also advertised as joint loans for bad credit because one of the borrowers has a poor credit rating. With the help of joint loans, you are likely to qualify for lower interest rates.
What are the types of joint loans?
Joint loans are mainly of two types – secured and unsecured. Unsecured joint loans are those that do not require a large borrowing sum, and therefore, you do not have to put down collateral. The absence of collateral is why these loans are called unsecured.
Secured joint loans, on the contrary, are those that require collateral. You will need a secured joint loan to apply for a mortgage. Unsecured joint loans can fund your wedding, vacation, home refurbishment, etc. In fact, these loans are also ideal for consolidating your current outstanding debts.
How does a joint loan work?
Having said that, a joint loan is split by both borrowers, and both of you will be liable to pay back the debt. However, if any one of you refuses to pay off the debt because of a change in circumstances, you will be liable to pay back the whole of the debt. Joint loans bring joint liabilities partially as well as completely.
As you are both connected to each other, the impact of missed payments or defaults by any partner will lower your credit points as well. Even in the future, when you apply for a loan, the damaging effects on your credit rating due to a default by the other partner will restrict your borrowing options. Further, high-interest rates will be charged when approved.
Note that divorce cannot separate you from your partner unless the debt is completely settled. Even though you have no connections with your partner, your credit history and finances will be affected by their missed payments. A lender has the right to call on you to pay the instalment.
Interest rates can be quite competitive when you apply for a joint loan as one of the borrowers has a good credit rating, but there is no guarantee that you will qualify for better interest rates. If you think this loan is ideal for you, you should use a calculator to get an idea of how much it would cost you.
Joint loans cannot be an effective solution when you have a very poor credit rating. A lender will be sceptical about your repaying capacity. You should try to improve your credit score before applying for big loans like mortgages and auto loans.
However, if you are looking to borrow short-term funds, you should consider using very bad credit loans with no guarantor and no broker. However, remember that these loans are too short that they can fund only unforeseen expenses, not big expenses like weddings, vacations, home renovations, and the like.
What are some things to consider before you apply for a joint loan?
Before you apply for a joint loan, you should consider the impact of repayment inability of your partner on your credit score. You should also bear in mind the consequences of this debt after parting ways. In addition, you should consider the following factors:
- Cost of repayments
You should assess your monthly payments and their impact on your regular expenses. Make sure you do not have to struggle with your regular budget, including stowing away money for a rainy day. Agreement in principle can help you understand how much it would cost you.
- Assess your financial security
As you know, it will take some time to get rid of debt. You should be sure of your financial condition so you do not face any complications. Take stock of other existing debts. Do you think you can manage both of them simultaneously?
- Check credit histories
Joint loans cannot be signed off on without a credit check run. It is likely that you are under the impression that you have a good credit rating. Your application will be turned down as a result, further pulling your credit points.
The bottom line
Joint loans are perfect loans when you need larger funds and your credit score is not so stellar. With the help of these loans, you will be able to get the nod for competitive interest rates.
Jessica William operates as a Senior Consultant and Chief Content Editor for 10 years at 1Onefinance. She assists the firm in getting a grip on the new lending laws and regulations. She does so by researching the trends, consumer requirements, and new audience preferences. Jessica is responsible for making important financial and administrative decisions.
Apart from helping consumers with the best solutions, Jessica Williams helps them ensure financial stability. She analyse the business data, finances, expenses, and revenue/ income of customers and determines necessary changes. Jessica finished her Doctorate in finance and law and implements her knowledge to the best interest of the firm and customers.