Can you take a loan with joint ac­count?

A

The Punch - - PERSONAL BANKING -

joint loan is a loan made to two or more bor­row­ers. All bor­row­ers are equally re­spon­si­ble for re­pay­ing the loan, and ev­ery bor­rower typ­i­cally has an own­er­ship in­ter­est in the prop­erty that the loan pro­ceeds go to­ward. Ap­ply­ing jointly can im­prove the chances of get­ting ap­proved for a loan, but things don’t al­ways work out as planned, ac­cord­ing to www.the­bal­ance.com.

Why ap­ply jointly?

More in­come: In­creas­ing the in­come avail­able to re­pay a loan is a pri­mary rea­son for ap­ply­ing for a loan jointly. Lenders eval­u­ate how much bor­row­ers earn each month com­pared to the re­quired monthly pay­ments on a loan. Ide­ally, the pay­ments only use up a small por­tion of your monthly in­come (lenders cal­cu­late a debt to in­come ra­tio to de­cide this). If the pay­ments are too large, adding an­other in­come-earn­ing bor­rower can help you get the ap­proval. Bet­ter credit: An ad­di­tional bor­rower can also help if she has high credit scores. Lenders pre­fer to lend to bor­row­ers with a long his­tory of bor­row­ing and re­pay­ing on time. If you add a bor­rower with strong credit to your loan ap­pli­ca­tion, you have a bet­ter chance of get­ting the ap­proval.

More as­sets: Joint bor­row­ers can also bring as­sets to the ta­ble. For ex­am­ple, they might pro­vide ad­di­tional cash for a sub­stan­tial down pay­ment. That is par­tic­u­larly help­ful when lenders dis­cour­age “gifts” from non-bor­row­ers, as with some mort­gage loans. An ex­tra bor­rower might also pledge col­lat­eral that they own to help se­cure a loan.

Joint own­er­ship: In some cases, it just makes sense for bor­row­ers to ap­ply jointly. For ex­am­ple, a mar­ried cou­ple might view all as­sets (and debts) as joint prop­erty. They are in it to­gether, for bet­ter or worse.

Joint loan ver­sus co-sign­ing

With both joint loans and co-signed loans, an­other per­son helps you qual­ify for the loan. They are re­spon­si­ble for re­pay­ment (along with the pri­mary bor­rower), and banks are more will­ing to lend if there is an ad­di­tional bor­rower or signer on the hook for the loan.

This is the main sim­i­lar­ity: Both co-sign­ers and co-bor­row­ers are 100 per cent re­spon­si­ble for the loan. How­ever, joint loans are dif­fer­ent from co-signed loans.

Co-signer rights: A co-signer has re­spon­si­bil­i­ties, but gen­er­ally does not have rights to the prop­erty you buy with loan pro­ceeds. With a joint loan, ev­ery bor­rower is usu­ally (but not al­ways) a par­tial owner of what­ever you buy with the loan. Co-sign­ers sim­ply take all of the risk with­out any benefits of own­er­ship. Co-sign­ers do not have the right to use the prop­erty, ben­e­fit from it, or make de­ci­sions re­gard­ing the prop­erty.

Re­la­tion­ship mat­ters

The re­la­tion­ship be­tween bor­row­ers may be im­por­tant when rel­e­vant for a joint loan. Some lenders only is­sue joint loans to peo­ple who are re­lated to each other by blood or mar­riage. If you want to bor­row with some­body else, be pre­pared to search a lit­tle harder for an ac­com­mo­dat­ing lender. Some lenders re­quire each un­re­lated bor­rower to ap­ply in­di­vid­u­ally—which makes it harder to qual­ify for large loans.

If you are not mar­ried to your co-bor­rower, put agree­ments in writ­ing be­fore buy­ing ex­pen­sive prop­erty or tak­ing on debt. When peo­ple get di­vorced, court pro­ceed­ings tend to do a thor­ough job of di­vid­ing as­sets and re­spon­si­bil­i­ties (although that is not al­ways the case). Even still, get­ting some­body’s name off a mort­gage is dif­fi­cult. But in­for­mal sep­a­ra­tions can drag on longer and be more dif­fi­cult if you don’t have ex­plicit agree­ments in place.

Is a joint loan nec­es­sary?

Re­mem­ber that the pri­mary ben­e­fit of a joint loan is that it is eas­ier to qual­ify for loans by com­bin­ing in­come and adding strong credit pro­files to the ap­pli­ca­tion. You may not need to ap­ply jointly if one bor­rower can qual­ify in­di­vid­u­ally. Both of you (or all of you, if there are more than two) can pitch in on pay­ments even if only one per­son of­fi­cially gets the loan. You still might be able to put ev­ery­body’s names on a deed of own­er­ship — even if one of the own­ers does ap­ply for a loan.

For sub­stan­tial loans, it may be im­pos­si­ble for an in­di­vid­ual to get the ap­proval with­out other bor­row­ers. Home loans, for ex­am­ple, can re­quire pay­ments so large that one per­son’s in­come will not sat­isfy the lender’s de­sired debt-to-in­come ra­tios. Lenders might also have prob­lems with non-bor­row­ers con­tribut­ing to the down pay­ment. But a big­ger down pay­ment can save money in sev­eral ways, so it might be worth adding a joint bor­rower:

• You bor­row less, and you pay less in in­ter­est on a smaller loan bal­ance.

• You have a bet­ter loan to value ra­tio (or a less-risky loan), so you might have ac­cess to bet­ter rates and more prod­ucts.

• You might be able to avoid pay­ing pri­vate mort­gage in­sur­ance.

Re­spon­si­bil­ity and own­er­ship

Be­fore de­cid­ing to use a joint loan (or not), ex­am­ine what your rights and re­spon­si­bil­i­ties are. Get an­swers to the fol­low­ing ques­tions:

• Who is re­spon­si­ble for mak­ing pay­ments?

• Who owns the prop­erty?

• How can I get out of the loan?

• What if I want to sell my share?

• What hap­pens to the prop­erty if one of us dies?

It is never fun to con­sider ev­ery­thing that can go wrong, but it is bet­ter than be­ing taken by sur­prise. For ex­am­ple, co-own­er­ship is treated dif­fer­ently depend­ing on the state you live in and how you own the prop­erty. If you buy a house with a ro­man­tic part­ner, both of you may want the other to get the home at your death—but lo­cal laws may say that the prop­erty goes to the dece­dent’s es­tate. With­out valid doc­u­ments to say other­wise, the fam­ily of the de­ceased may be­come your co-owner.

Get­ting out of a loan can also be dif­fi­cult (if your re­la­tion­ship ends, for ex­am­ple). You can’t just re­move your­self from the loan—even if your co-bor­rower wants to re­move your name. The lender ap­proved the loan based on a joint ap­pli­ca­tion, and you’re still 100 per cent re­spon­si­ble for re­pay­ing the debt. In most cases, you need to re­fi­nance a loan or pay it off en­tirely to put it be­hind you. Even a divorce agree­ment that says one per­son is re­spon­si­ble for re­pay­ment will not cause a loan to be split (or get any­body’s name re­moved).

Newspapers in English

Newspapers from Nigeria

© PressReader. All rights reserved.