Whether you are funding a family wedding or a personal vacation, one usually needs some kind of external financial support to meet these expenses. A personal loan is an option worth considering in these scenarios. Sometimes the loan amount that you have applied for might be more than enough for what you wish to fund. In such cases, enlisting the aid of a personal loan co-applicant is wise. A personal loan co-applicant’s purpose is to share the loan repayment responsibility with the primary borrower. Using a personal loan EMI calculator will allow you to see how much you can save when you get a personal loan with a co-borrower.
Who is eligible as a personal loan co-applicant?
Most lenders offer the option for co-borrowing, and one’s personal loan eligibility remains the same whether they are the principal borrower or the secondary borrower. However, each lender will have its own set of guidelines with regards to granting permission to the co-applicants. Typically, it is spouses who are favored by lenders as co-applicants. Occasionally, siblings can also become co-applicants for the same personal loan.
Benefits of Co-borrowing
There are a host of benefits to adding a co-applicant to one’s loan.
- Better Income for Higher Personal Loan Eligibility
By increasing your income you are bettering your chances of receiving your loan. Your personal loan eligibility will be based on the total income on your application, which may include a co-applicant’s income. As both parties will share the burden of repayment, a loan provider may be more inclined to give out the loan to those who employ the use of co-applicants.
- Reduces Your Debt to Income Ratio
Having a co-borrower on board also reduces your debt-to-income (DTI) ratio. The primary reason personal loan applications are rejected is due to a high debt to income ratio of the borrower. This ratio is that which looks at your total EMI demand each month in contrast to your monthly income. Your EMI demand can be known in advance through a personal loan EMI calculator. As the income of both applicants is added when a co-applicant shares the loan with you, the DTI ratio is lowered.
- Allows You to Receive a Loan with a Low Credit Score
A third way in which they benefit borrowers is by enabling those with a low credit score to avail of a personal loan. Co-borrowing allows individuals to gain personal loan eligibility even when their credit score may be lower than is typically necessary. This is because the cumulative credit score will rise if their co-applicant has a higher credit score. This makes them eligible to receive a loan.
Things to Keep In Mind with Co-borrowing
Here are a few key pointers to remember if you wish to co-borrow or to enlist the help of a co-borrower for your personal loans.
- Online personal loan EMI calculators can tell you your monthly EMIs. If either of the co-applicants defaults on their EMIs, this will affect their credit score.
- Suppose the principal applicant cannot repay the personal loan in time. The responsibility to pay will immediately fall upon the co-borrower.
- Very few lenders offer a joint personal loan option to borrowers. Do your research thoroughly as individual policies may differ significantly on important criteria.
As mentioned earlier, when it comes to the loan application process for joint loans, one can still make use of personal loan EMI calculators. However, since there are two applicants, the application procedure may take longer than usual.