Is it Good to take out a Joint Loan?

There are many people that choose to take out a joint loan. This is often done with a mortgage but can also be done with a bank account that has an overdraft facility and personal loans. These are often taken out by married couples, but partners and sometimes even friends or siblings may consider them too. There are advantages and disadvantages.

If you are having trouble borrowing money, or enough money, then having a second name on the loan could help. This is particularly true with a mortgage when the amount that needs to be borrowed is usually very big and so having two named earners on the loan can help the lenders to be confident in your ability to repay and more likely to lend you more money. This can be really handy if you can share the responsibility of the repayments and share the items the loan is taken out to pay for. So if you do buy a house, you can share the cost of the repayments and the cost of the loan. The lender will take both your earnings into account when looking at how much to lend and whether you can afford the repayments and so you are likely to be able to borrow more. This can be good as you can get a bigger property, but there is also a danger in borrowing a higher amount of money as it will be more expensive to make the repayments and you will have more overall debt. For some people it is the only way that they can afford even the most basic home though. With other loans it can also be useful in helping you to borrow more money. If one person does not have a good credit record, then pairing up could mean that they will be able to have access to borrowing money which they may not have had otherwise. This is good for them, but may not be so good for the other person, particularly if the one with the bad credit record does not look after the available funds or borrows more than the couple can afford to repay and then they both end up with a bad credit record.

It is worth noting though that each party is responsible for the whole loan. So if one cannot pay their share, the other will have to pay it all. You are not responsible for only half of it. So if you have a joint overdraft, one person borrows a lot on it and then you split up, you will still be responsible for it. So they could effectively steal money from you. Any bad debts will go on both of your credit records as well, even if it was them that spent the money. The only way to prevent this happening with an overdraft on a joint account is to have it set up so that both account holders have to sign to agree to each transaction. This can be rather cumbersome but it may help to protect both parties against the other making withdrawals that they do not agree on.

It is therefore something that you need to take a lot of time thinking about. Obviously, when you are married to someone or in a long term relationship, you may assume that you will always be together and therefore there will be no problem with having joint accounts. However, it is not easy to predict the future and you could find that this leads to trouble. It could therefore be good to think about how much trust there is between you and your partner as well as how good they are with money. Do you think they would be likely to spend out on an overdraft and cause financial problems or to not pay back their share of a loan? Think about what might happen if you had to take full responsibility for repaying a joint debt and whether it was something that you could cope with on your own. It can be a difficult subject to talk to them about, but if you feel it would be better to not share responsibility for debts then take out separate loans. This could be hard with a mortgage, but with a personal loan it is likely to be simple enough and you could suggest having credit cards instead of an overdraft on a joint account. You may even prefer to keep all accounts separate anyway.

It is worth taking some time to consider the consequences of having joint accounts. Although it can be more convenient and may mean that you can borrow more money, there is an element of risk. You will then be responsible for any debts accrued in joint names, even if you do not spend the money yourself or agree to the borrowing. It is therefore something that you should make sure that you do not sign up to without a lot of thought.

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