In many cases, it is possible to either take out a loan in a single name or in joint names. In some cases it can be a big advantage having two names on the loan, but in some cases it can be a disadvantage. It is worth understanding when and why this might make a difference, so if you do have a partner or spouse, you can decide whether going joint is the best way to go.
Joint income for mortgage
When you are applying for a mortgage your income is taken into consideration as part of a formula to calculate how much you can be lent. This varies between lenders but it tends to be 3 x a single person or 2.5 x joint income. This means that having a joint income in the calculation will usually make a big difference when calculating how much you can borrow. Only if one income is significantly smaller than the other, will it be better to go with the joint income calculation. With other types of loans, income is not normally a factor in deciding how much to lend but income is part of your credit record and so it could help there to have two incomes being considered rather than just one.
Joint credit record
Your credit record will have a list of direct debits, loans and previously paid off loans as well. It also has income information and other personal details. Lenders use this to decide whether they feel they can trust you enough to lend money to you. They will be interested to see if you have had loans before and whether you paid them back or if you have any outstanding payments owing. If you both have reasonable credit records then it could be worth making a joint application as two good records will be better than one. However, if one person has a poor record then the lender may feel the loan is much more risky and refuse it or charge much more for it. Therefore it is worth finding out what your credit record says so that you can decide whether it is better to include it or not.
The risk of joining with someone else is that if they cannot afford to cover their share of the repayments and you cannot cover theirs as well as yours then it will show up on your credit record. The lender will not know who did not have the money and therefore will penalise both parties. In fact if you take on a joint venture with someone who has a poor credit record it could reflect badly on yours even if you have a good one and you always make the repayments on the joint product. The partner will still be seen as a risk and lenders may be concerned that your associations with them could mean that you are covering some of their repayments and so you may not always have enough money either.
Joint repayment responsibility
If you have a loan in joint names, it will mean that you will both be responsible for repaying it. This could be good as it means that you have twice the chance of the payments being made. However, if one person doesn’t pay their share and the other does pay their share, then this will be uneven. However, if one pays half and the other doesn’t pay their half then both parties will be trouble and could both get a poor credit record as a result. Essentially both are responsible for the full repayment being made and both will be penalised if this does not happen.
Most couples manage this with a joint bank account which they both pay in to. Then they are able to use money from there to cover the loan repayments as well as other bills and there are no problems. It is a known statistic though that many couples argue about money and therefore it is wise to make sure that you both agree about how the repayments will be managed before you take out the loan. Some couples may just share everything and so it does not matter who pays the repayment as it will be a joint effort but some couple operate separate bank accounts, which can make things more complicated. It can be a shame if couples fall out over money but if one spends a lot or doesn’t make the effort to earn much and cannot contribute their fair share, the other may feel that it is unfair and that they are not doing enough. It is a very personal thing as every couple will have inequality in earning and spending but some will accept it and it will not be a problem but for others it will be. It is just up to the couple to make sure that they can come up with a loan agreement that will suit both of them and hope that their financial situations will continue to allow them to stick to that agreement.
So you can see that there are advantages and disadvantages of applying for a loan on your own or with someone else. With a mortgage you can potentially borrow more with someone else which could allow you to get a bigger home. However, if the person has a poor credit record you will be leant less and that record may even be reflected on you. You can find out more here. If the person does not manage to pay their share of the repayments then any penalty will be joint responsibility. Lastly a joint arrangement could possibly be the cause of disagreements in the relationship and may even cause a breakdown of the partnership. Therefore it is wise to think through this decision very carefully. You need to consider the short term and long term consequences in order to work out whether a joint or single loan will be best for you.