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.
Of course, it may be impossible for one person to qualify for a large loan. Business 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?
- How can I get out of the loan?
- What if I want to refinance my share?
- What happens to the loan 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. Getting out of a loan can also be difficult (if your relationship/friendship/partnership 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.