Can I apply for a joint secured loan with my partner?

When a couple is committed to each other, they often take steps to secure the status of their relationship. Some will formalise their relationship through marriage, whilst others will purchase property together, or have children. Some will consider their relationship exclusive at the point at which their finances merge and this is often the point at which they will consider taking out a joint loan.

Why would a couple take out a joint loan?

There are a number of reasons why a couple would wish to take out a joint secured loan. It could be that the money is needed to buy something that will benefit both parties, such as a once-in-a-lifetime holiday, wedding, new car, or home improvements on a jointly owned property.

Other reasons why couples typically take out a joint loan are when neither has a strong enough credit score to take out a loan of the necessary value by themselves or when the repayments are only affordable if both parties contribute.

How does a joint secured loan work?

A secured loan is a loan that is secured against an item of value. This is usually the applicant’s home, but in some instances, it can be another asset of value, such as a classic car or expensive jewellery. Because a secured loan is usually taken out with a house or flat offered as collateral, it is sometimes known as a homeowner’s loan.

A joint secured loan is a secured loan with two names on the application rather than one. The two names need not be of a married couple, although it is preferable that the asset offered as collateral is jointly owned in order that the risk and incentive for making repayments is equally shared between the parties.

A joint loan offers a number of advantages to borrowers as it can allow them access to more money than they would be able to borrow without offering an asset as collateral, and often with longer repayment periods and more favourable interest rates. However, the downside is that should they fail to keep up repayments, the lender is entirely within their rights to sell the asset to recoup the value of the outstanding debt.

For this reason, it is essential that the couple satisfies themselves that they will be able to afford the repayments before they take out a joint secured loan against property.

How should I choose a joint secured loan?

The best joint secured loan is one that provides the funds that are necessary to satisfy the needs of the applicants, that offers an attractive interest rate over an appropriate period, and wherein the monthly repayments are affordable.

Affordability should not be judged based entirely on the applicants’ current circumstances, but should take into account whether life changes would have an impact on their ability to repay the loan in accordance with the loan agreement. They should consider whether they would be able to continue to afford repayments if one party lost their job or if they had a child. They could consider the impact of inflation and whether the payments would remain affordable if the interest rate changed mid-term. They should also ensure that the length of the loan would not require them to remain in full time employment past retirement age, as this could significantly impact their long-term quality of life

Free Price Compare offers a simple to use online joint secured loan calculator, which will allow potential applicants to compare a number of different products that are available without any adverse impact on their credit score. This "soft search" is recommended in order that they can make an informed assessment of their choices, consider the affordability of the options that they are likely to be eligible for, and determine whether a joint secured loan is, in fact, the most appropriate way of funding their plans.

For those looking at joint secured loans as a method of debt consolidation, we recommend discussing your financial situation with a debt support charity such as Step Change [1], who may be able to offer alternative methods of clearing outstanding debt without putting your assets at risk of repossession.

Will my credit score matter when applying for a joint loan?

It is easy to imagine that a low credit score will be buffered by a partner’s excellent financial history in a joint application, but this is not the case. In the eyes of the law, co-signatories to a loan will be held jointly and severally liable for repaying the debt. In simple terms, this means that each party has equal responsibility for repaying the entire debt, not merely "their" half. This is the case for all situations in which two people borrow money together, whether this is a loan, overdraft or credit card.

Therefore, whilst a lender will consider the overall affordability of the loan based on the financial situation and credit score of both applicants, they will have a lower risk appetite where one party is applying for a joint secured loan with bad credit. A risk averse lender may offer less attractive interest rates, a lower maximum lending value or a shorter repayment duration.

When you apply for a joint secured loan, the loan will show on the credit report of both parties, so should repayments be missed, both parties’ credit scores will be impacted, which could make it harder to take out other loans or finance arrangements in the future.

I have a good credit history, is a joint secured loan a good idea?

A couple looking to take out a joint secured loan with good credit are certainly likely to benefit from more attractive joint secured loan rates than those where one or both parties have a low credit score. A lender will recognise that a couple who are equally good at handling their finances are more likely to collaborate when budgeting or planning their finances and thus better account for repayments in current and future financial planning, reducing the risk associated with lending to them.

In order to make sure that you and your partner benefit from the most attractive deal, you should carry out a joint secured loan comparison. This ensures that you can select the deal that best satisfies your requirements, minimises your repayments and allows you to pay off the loan in the shortest possible time scale.

Does a secured loan offer good value for money?

The interest rates on a secured loan are often lower than those for an unsecured loan of a similar value. This is because the lender is taking less risk by lending money to the applicants, as they are legally entitled to take possession of the asset held as collateral and to sell it to recoup any outstanding debt should one or both parties cease making repayments.

For this reason, it is essential that you consider not only the cost of the loan, but also the duration for which it is to run, as a lower interest rate over a longer period could end up costing more than an equivalent unsecured loan with a higher interest rate that is repaid more quickly. And without the risk of losing your home.

For those who are planning to use a joint secured loan to carry out home improvements that will radically increase the value of their property prior to remortgaging or selling it, taking out a joint secured loan can be a beneficial exercise. However, alternatives do exist and it is essential that you consider all options prior to opting for a joint secured loan to satisfy your need for additional funds.

Because everybody’s circumstances are different and each loan rate is calculated based on a number of factors that are specific to each applicant, it is impossible to say for certain whether a secured loan will ever offer good value for money. This is why we recommend exploring alternatives and performing a secured loan comparison prior to applying for any loan.

What are the alternatives to a joint secured loan?

There are many alternatives to a joint secured loan. The simplest solution, in many cases, is for both parties to prioritise saving a proportion of their monthly income in order to build a savings pot that can be used to fund the event or purchase that they wish to make. Free and impartial budgeting advice and assistance is available from the government’s Money Helper service [2], which can be invaluable in building a nest egg and planning for the future.

A couple may choose to apply for a 0% interest rate joint credit card. Again, because the applicants would both be putting their names to the application, they would be held joint and severally liable for repaying the debt, but this is a reasonably simple solution to accessing money quickly which, provided it is repaid in full within the interest free period, will cost no more than the original value of the expenditure.

Equally, many joint bank accounts often offer an overdraft facility that, whilst still the joint responsibility of both parties to repay, can offer attractive interest rates if used to fund a one-off purchase that will be paid back over a reasonably short period of time.

The final alternative to a secured loan is an unsecured loan. This is a loan where the lender does not require the couple to offer an asset as collateral, unlike a joint secured loan meaning that the risk to the borrowers is substantially reduced. While failure to make repayments as agreed will impact both parties’ credit score, they will not be at risk of homelessness.

Other than by saving, it is unlikely that any of these alternatives will offer a value that is comparable with that typically accessible using a joint secured loan. However, it is vital that couples consider the risk and benefit balance of taking out a high value secured loan versus a lower value alternative and that they shop around for a better rate or delay the purchase until such time as they are better placed financially to afford it.

What is the process for taking out a joint secured loan?

If you have understood and carefully considered all of the risks associated with a joint secured loan but still feel that this is the most appropriate way of securing the funds that you and your partner need, you should use a comparison service such as the Free Price Compare joint secured loan calculator to identify the loan that offers the most favourable terms for your particular circumstances.

Once you begin the application process, the lender will run a hard check on both applicants’ credit reports to ensure that you are eligible for the deal proposed by the comparison tool. They will accept or decline your application at this point, and if they accept then you will need to review the lender’s offer to ensure that it satisfies your needs and that you understand and are content with the proposed rates, value and repayment plan.

If you are content, then you can jointly accept the agreement, at which point the funds will be transferred to your nominated account. There is no need to rush this process and if you feel at all uncertain at any point, you can cancel the application.

If you decide to accept the loan and receive the funds, you will need to make your repayments in accordance with the agreed repayment schedule. The agreement will only end at such point as the loan has been repaid in full, either at the end of the agreed repayment schedule when all payments have been made as planned, or in some situations, earlier than agreed,. The terms and conditions applied by each lender will be different and some may charge additional fees or modify the interest rate where payments are made early or not in accordance with the agreed repayment schedule.

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References

• [1] www.stepchange.org