Taking out a joint loan: what you need to know
Many couples take out some form of joint debt or loan. But although it may mean you can borrow more between you than if one of you took out the loan on your own, it’s a serious step because each of you could be asked to repay the full debt if the other person couldn’t.
What types of loans and debt can be taken out jointly?
There are several different types of loans and debt that can be taken out jointly, including:
- Secured loans – such as a mortgage
- Unsecured loans – such as a personal loan from a bank or other lender, and
- Joint bank accounts where there’s an overdraft facility
Joint and several liability explained
Most joint bank accounts are set up so that one person can spend money without the others’ permission. But you can set up an account so that all of you have to agree before any money can be taken from the account.
You might think that when you take out a joint loan or debt with someone else that you’re only responsible for your ‘half’ or share, but that’s not the case. If you sign a credit agreement (a contract) for a loan or overdraft, for example, with someone else you each agree to pay off the whole debt if the other(s) can’t – or won’t.
It doesn’t matter who spent the money, or who now owns the item or items you bought with the joint loan or overdraft.
It also doesn’t make a difference whether you’re married, in a civil partnership or even if you’re not in a relationship at all. For example:
- If your husband, wife or partner passes away, any joint mortgage will still need to be repaid by you, and
- If you break up with your boyfriend or girlfriend, they could still run up a debt on a joint bank account if there’s an overdraft facility and leave you with the total bill
In other words, any joint debts mean joint responsibility and liability. And if the other person doesn’t pay up, you could end up with a lot of debt on your hands.
What about credit cards – can they be taken out jointly?
In the UK, credit cards can’t be taken out jointly, even if you and your partner each has a card. There’s always one person – the main cardholder – who’s signed the agreement which means they are responsible for paying off the debt in full.
It is possible for the main cardholder to let someone else have a credit card on the same account but the so-called secondary cardholder doesn’t have legal responsibility to make any payments to the credit card company.
Can a joint application improve your chances of getting credit?
Applying jointly for a loan can sometimes increase your chances of getting credit. However, you should definitely avoid applying together if one of you has a poor credit rating.
Once you have a joint debt with someone else, your credit file will be linked to theirs. This means that if you want to apply for a loan in your own name in the future, the lender would be able to see the other person’s credit history and take that into account as well as your own.
It’s a good idea for both of you to check your credit rating before taking out any joint credit.