Joint Loans: What Are They and How Do They Work?

Joint loans can be taken out for several reasons, from mortgages to overdrafts, and each person is fully liable for the debt being repaid. It is important to make sure that you are on the same page as the person you are borrowing with, and you have had an honest discussion about your finances.

Rebecca Goodman, Connor Campbell Last updated on 05 October 2022.
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Joint Loans: What Are They and How Do They Work?

You may be familiar with one common type of joint loan: a mortgage taken out by two or more people. However, the finance you can access with a friend, family member or partner doesn’t end there. You can also access joint overdrafts, car finance, and unsecured and secured personal loans.

When you take out a joint loan, it’s important to understand that both of you are liable to repay the debt. So if for some reason one person can’t pay it back, or chooses not to, the other will become responsible for repaying the whole amount.

Read on below to find out how joint loans work, who can apply together, and what other eligibility criteria you may need to meet.

How do joint loans work?

A joint loan is a loan jointly applied for, used, and paid back, between a number of people. The arrangement will usually be for two people: this could be a couple, family members, business partners or friends. In the case of mortgages, as many as four people can team up.

When you take out a joint loan you’ll be told how long it will last, how much you need to pay back over time, and the interest rate.

By borrowing with somebody else, you might get a bigger loan than you would when applying on your own. This is because lenders often see joint applications as less risky since they aren’t solely relying on one borrower to repay the debt.

What types of loans can be joint?

There are several different types of loans which can be taken out jointly, including:

Mortgages

Joint mortgages are arguably the most common form of joint loan. Typically taken out by partners, they can also be used by parents and children, and groups of friends.

» COMPARE: Mortgages

Secured loans

While a mortgage itself is a type of secured loan, it is possible to apply for a standard joint secured loan. With any form of secured loan, you will need to put up an asset as a security, be that property, a car, or something else of value.

» COMPARE: Secured loans

Unsecured loans

Unlike a secured loan, a joint unsecured loan does not require an asset as a security. Instead, you will just need to pass the lender’s credit checks, and meet the specific eligibility criteria.

» COMPARE: Unsecured loans

Bank account overdrafts

Like a joint mortgage, a joint bank account overdraft is another form of joint loan. Both parties are responsible for paying off the overdraft, not just the person who spent the money.

» COMPARE: Overdraft accounts

Car finance

If you are looking to get a new vehicle through car finance, it is possible to do so as a pair. Different car finance providers have different eligibility requirements for submitting a joint application, such as living at the same address or being partners.

» COMPARE: Car finance

Who can share a joint loan?

Taking out a joint loan is not something to do without careful consideration. This is because both people taking out the loan are jointly responsible for paying it back.

Therefore, you need to think about the person you are borrowing with carefully before you sign on the dotted line. The following questions are a good starting point:

  • How long have you known them?
  • How reliable are they?
  • How much do you know about their finances?
  • If they lost their job or couldn’t work, what would happen? Do they have savings or other assets they could fall back on?
  • Do you trust them?

You may be able to take out a joint loan with the following people:

  • friend
  • partner (you don’t need to be married or in a civil partnership)
  • family member (this could be a parent, sibling, or long-lost cousin)
  • business partner (you may consider taking out a specific business loan)

What is the eligibility criteria for a joint loan?

While the specific requirements will differ depending on the lender, to successfully apply for a joint loan you may need to:

  • meet an income threshold
  • both be UK residents
  • both over the age of 18

Other criteria sometimes include living at the same address, and one person having a current account with the lender in question.

Joint loan credit checks

You will also need to pass the lender’s credit checks. Whenever you take out new debt, your new lender will look at your credit history. This is to see how likely you are to pay back the debt. The better your credit history, the better chance you have of securing the loan. The largest loans, and those with the lowest interest rates, are reserved for people with the best credit scores, as they are considered least likely to miss repayments or default on the loan.

When making a joint loan application, both parties will need to fill in their details and the lender will look at both of their credit scores. This is because they are jointly liable for repaying it so a lender will want to assess whether each person is able to. Therefore, it’s important to have a frank and honest discussion with the person you’re thinking about taking out a joint loan with, before you apply.

» MORE: How to get a loan with bad credit

How does a joint loan affect your credit rating?

If you take out a joint loan with another person, this means not only are you jointly responsible for the debt, but your credit files are also linked.

This can be a problem if one person has a poor credit history. This is because if you apply for credit again on your own, lenders will look at both your record and the other person’s, which may influence their decision.

Pros and cons of joint loans

Applying for a joint loan is a big decision and shouldn’t be taken lightly. It is important to weigh up the pros and cons before proceeding.

Pros

  • You may be able to get a bigger loan.
  • It may be the only way to qualify for the mortgage you need.
  • The interest rate could be lower than on a loan just for one person.
  • You share the cost of repaying the loan.

Cons

  • You are both jointly responsible for repaying the loan.
  • If there is a falling-out and one person stops repaying a loan, the other is still responsible for the debt.
  • With personal loans, one person may spend the money on something that wasn’t agreed with the other person.
  • If one person dies, the other still has to repay the full amount.

Can you get out of a joint loan?

It’s usually not possible to get out of a joint loan without repaying it in full which is why you need to think carefully before taking one out. If, for example, you take out a joint loan with a partner and then split up, you’ll still need to work together to repay it, even though you are no longer in a relationship.

If a partner is refusing to pay, speak to your lender and explain the situation. You will have to make the full payments but there may be some alternatives offered by the lender, depending on the situation.

What happens to a joint loan when someone dies?

Usually, when someone dies, any debts they have outstanding are paid off from their estate, which is the amount of money and assets they own. However, if that outstanding debt is part of a joint loan they have not fully repaid, the other person who took out the loan will become solely responsible for paying off the rest of the loan in full.

How to apply for a joint loan

Although the process will vary from lender to lender, and the type of loan, when applying for a joint loan you will likely need to follow these steps:

  1. Have an honest, open discussion about your respective finances.
  2. Decide how much you want to borrow, and for how long.
  3. Compare lenders, and choose the one that is best for your financial circumstances.
  4. Fill out the relevant application forms, and submit all the details and documents that the lender requires.
  5. Wait to hear whether or not your application has been successful.
  6. If successful, accept or decline the loan offer that has been made.

» MORE: How to apply for a loan

About the authors:

Rebecca Goodman is a freelance journalist who has spent the past 10 years working across personal finance publications. Regularly writing for The Guardian, The Sun, The Telegraph, and The Independent. Read more

Connor is a writer and spokesperson for NerdWallet. Previously at Spreadex, his market commentary has been quoted in the likes of the BBC, The Guardian, Evening Standard, Reuters and The Independent. Read more

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