Joint Loans Explained: What UK Borrowers Need to Know

Who This Guide Is For

If you are considering sharing borrowing power with someone else – whether a partner, relative, or trusted friend – this guide is for you. Joint loans can be useful for couples looking to fund a major purchase, parents supporting adult children, or even business partners managing shared expenses. Anyone in the UK who wants to understand the benefits, risks, and practicalities of applying for a loan jointly will find valuable information here. This guide will help you decide whether a joint loan fits your circumstances and what to consider before proceeding, ensuring you’re equipped to make an informed financial decision.

Simple Definition of the Topic

A joint loan is a credit agreement between two (or sometimes more) people, who agree to share responsibility for repaying the borrowed amount. Both parties apply together, both are assessed for creditworthiness, and both are equally liable for making repayments. If payments are missed, both borrowers’ credit scores may be affected. Joint loans are commonly used for significant purchases like a car, home improvements, or consolidating debt. The essential point: with a joint loan, both applicants are “jointly and severally liable,” meaning the lender can pursue either or both for the full debt if repayments are missed.

Why It Matters

Borrowing jointly can boost your chances of approval and potentially unlock larger loan amounts, as lenders consider both incomes and credit histories. This can be critical for people who might otherwise struggle to secure a loan alone. However, the stakes are higher: your financial ties become formalised, and you share responsibility for the debt. If one party cannot pay, the other must cover the full repayments. This can affect your relationship and your access to credit in the future.

Joint loans also create a financial link between borrowers on credit files. This can be beneficial if both have strong credit, but risky if one has a poor history. Before taking this step, it’s vital to understand exactly how joint liability works and what happens if circumstances change.

How It Works (Plain English)

1. Application Process:

• Both applicants supply personal and financial details, including income, employment, and credit histories.
• The lender checks both credit scores and assesses affordability based on joint income and outgoings.
2. Approval & Loan Terms:
• If successful, both parties sign the loan agreement.
• The loan amount, interest rate (APR), repayment schedule, and term are set out clearly.

3. Repayment:

• Both borrowers are equally responsible for ensuring payments are made, typically via direct debit.
• If payments are missed, the lender can seek repayment from either party or both.

4. Credit Impact:

• The loan appears on both credit reports, creating a financial association.
• Positive repayment builds both credit scores; missed payments damage both.

Example: Sarah and James take out a £10,000 joint loan for home renovations. Both incomes are considered, and they agree to repay £250 per month over four years. If James loses his job, Sarah must ensure payments continue – otherwise, both could face credit consequences.

Key Points:

• The loan does not have to be split 50/50; the lender is not concerned with your private arrangement.
• The lender can pursue either party for the full amount if payments stop.
• Joint loans are available from banks, building societies, and specialist lenders, often for amounts between £1,000 and £50,000.

Things to Know Before You Apply

• Trust and Communication: Only apply with someone you trust completely. Discuss how you’ll manage repayments, especially if circumstances change.
• Credit Record Link: Your credit files will be linked, affecting future individual applications for credit.
• Affordability: Both applicants’ incomes and outgoings are scrutinised. Be honest about your financial situation.
• Separation or Dispute: If the relationship breaks down, both remain liable. You cannot simply remove your name from the agreement.
• Exit Strategy: Check if the loan can be repaid early and if there are penalties for doing so.
• Impact of Missed Payments: Defaults harm both parties’ credit files, making future borrowing harder.

Jargon Buster (Key Terms Explained)

• Joint and Several Liability: Both parties are responsible for the whole debt, not just their share.
• APR (Annual Percentage Rate): The overall cost of the loan, including interest and any fees, expressed as a yearly rate.
• Credit Association: A formal link between two people’s credit records when they hold joint financial products.
• Affordability Check: An assessment by the lender to ensure you can meet repayments.
• Default: Failure to repay on time, which harms your credit record.

Pros and Cons

Pros	Cons
Higher chance of approval	Joint liability for full debt
Access to larger loans	Credit files become linked
Possible better rates	Relationship strain if issues arise
Shared responsibility	Both credit scores at risk

Alternatives You Should Consider

• Single Applicant Loan: Apply on your own if you have sufficient income and a strong credit score. Removes risk of financial association.
• Guarantor Loan: A third party (often a family member) guarantees repayment if you default. Credit files are not directly linked unless the guarantor is called on.
• Credit Card: For smaller amounts, a 0% purchase credit card may be cheaper if repaid within the interest-free period.
• Personal Loan With Co-Signer: Similar to a guarantor loan, but the co-signer is only responsible if you default.
• Secured Loan: Using an asset (like your home) as security may offer better rates, but increases risk if you can’t pay.

Consider which option matches your circumstances and appetite for shared responsibility.

FAQs

1. Can we decide how much each person pays? Yes, privately. But the lender holds both parties fully responsible for the entire debt, regardless of your arrangement.

2. What happens if we split up? You remain jointly liable until the debt is repaid or refinanced. Some lenders allow you to transfer the loan to one party, but approval is not guaranteed.

3. Will a joint loan improve my credit score? Only if the loan is managed responsibly by both parties. Missed payments will negatively impact both.

4. Can I remove my name from a joint loan? Not unless the loan is repaid or refinanced in the other person’s name. Lenders rarely allow unilateral removal.

5. What if one person can’t pay? The other must cover the full repayment. The lender will pursue both for the outstanding balance.

6. Are joint loans available for all loan types? Most personal loans and mortgages can be joint, but not all lenders offer joint options for every product.

Get Started or Learn More

If you’re considering a joint loan, research your options carefully and discuss your plans openly with your co-applicant. For tailored advice and to compare offers, speak with a qualified finance broker like Kandoo. Visit our website to find the best solution for your needs and take the next step with confidence.