Could A Joint Loan Help You Tackle Multiple Debts?

Handling lots of debt can feel like a big mess. You’ve got credit card payments here, loan due dates there—it’s enough to make your head spin.

Now, if you and someone else, like your partner or a family member, both have debts to pay off, things can get even more stressful.

That’s where a joint loan might help. It’s a loan that two people take out together to combine all their debts into one. By working as a team, you could get better repayment options and make everything simpler.

But is this the best choice for you?

This guide covers everything you need to know about joint loans for debt consolidation in the UK.

What is a Joint Loan?

A joint loan has two co-borrowers who apply and are equally responsible for repayment. Co-borrowers can be spouses, partners, relatives or friends. Any two adults can apply together.

Joint borrowing allows you to combine income, credit scores and financial circumstances when applying. This can increase approval odds compared to a single applicant with a limited credit history or low income.

With debt consolidation loans, a joint loan combines two people’s existing debts into one shared loan.

What is Debt Consolidation?

Debt consolidation refers to rolling multiple debts from loans, credit cards, store cards, and overdrafts into one consolidated loan. The goal is to simplify debt repayment through a single monthly payment.

Benefits of debt consolidation include:

• Simplified repayment
• Potentially lower interest rate
• Improved credit score
• Easy to budget and manage

Consolidating debt can help provide relief if you are struggling to keep up with multiple loans, credit card and store card payments each month.

When is the Best Time for a Joint Consolidation Loan?

A joint loan makes sense when:

• You need to consolidate high-interest debts
• You want to improve household budgeting
• One borrower cannot qualify for a large enough loan alone
• You and your co-borrower trust each other
• Your relationship is stable and your commitment is strong
• You want to build your credit history

Joint borrowing should be carefully considered. Make sure you and your co-applicant are both fully on the same page.

Benefits of a Joint Debt Consolidation Loan

Joint loans allow two co-borrowers to apply together and share responsibility for repayment. The key advantages are:

• Increase the chances of approval. Combining incomes and credit histories can help secure loan approval compared to applying individually. This provides access to debt consolidation even if one borrower has poor credit.
• Qualify for a lower interest rate. Better collective creditworthiness may get you a lower rate, saving on interest costs over the life of the loan. This makes repayment more affordable.
• Share debt responsibility. The burden of debt is easier to manage when it is split between co-borrowers. It provides emotional and financial support.
• Build credit history. Responsible repayment can help co-borrowers with thin credit files establish good payment histories.

Potential Challenges With Joint Loans

Joint loans also come with some potential downsides to discuss:

• Both co-borrowers are 100% liable for repayment
• Missed payments hurt both your credit scores
• Strained relationships if the loan becomes an issue
• Fees can apply if you pay off early
• Lawsuit or debt impacts both if severe issues
• Divorce may not release you from liability

Have an open and honest conversation before moving forward to make sure you are comfortable with shared responsibility. Understand the risks.

Eligibility Criteria for Joint Debt Consolidation Loans

To qualify for a joint debt consolidation loan in the UK, applicants generally must:

• Be UK residents over 18 years old
• Have a regular income source
• Have a UK bank account
• Have a fair to good credit rating, as different lenders have varying credit score preferences.

Supporting documents required:

• Proof of Identity – Such as a passport or driving licence, to verify your identity.
• Address Proof – Like a utility bill or council tax statement, to confirm your UK residency.
• Bank Account Statements – To provide a snapshot of your financial situation.
• Credit Reports – These give lenders insight into your credit history.
• Income Proof – Documents like pay slips or tax returns to prove your income source.

Who Can Be a Co-borrower?

Interestingly, co-borrowers don’t need to be related or married. Any two individuals willing to jointly take on the responsibility can apply. 

However, remember that both parties will be equally responsible for repaying the loan. This means if one person fails to pay, the other will be liable for the full amount.

How Much Can You Borrow with a Joint Debt Consolidation Loan?

The maximum loan amount you can qualify for depends on factors like:

• Combined income of co-borrowers
• Existing debts and minimum payments
• Credit scores and history
• Debt-to-income ratios
• Lender’s underwriting policies

Many lenders allow joint consolidation loans from £5,000 to £50,000 or more. The higher your income and credit scores, the more you may be approved for.

Aim to borrow only what you need to optimise savings on interest costs. Avoid taking on more debt than necessary.

What Debts Should You Consolidate?

Good debts to consolidate with a joint personal loan include:

• Credit cards
• Store cards
• Payday loans
• Medical bills
• Personal loans
• Consumer finance loans

Debts that are likely ineligible for consolidation:

• Federal student loans
• Auto loans
• Mortgages
• Secured loans
• Child support

Remember, the idea is to make your life easier by turning many payments into just one. Focus on high-interest debts that aren’t tied to any property you own. And it’s usually best to leave alone loans like your mortgage or car loan.

Comparing Lender Interest Rates

If you’re thinking about getting a joint debt consolidation loan, it’s good to know that different places offer different interest rates.

Here are the average APRs for joint consolidation loans:

• Banks. Usually, banks give rates between about 6% and 36%. If you have a really good credit score, you might get a lower rate.
• Online Lenders. They also likely have rates in this range. They’re known for good deals but you might need to meet their specific requirements.
• Credit Unions. For credit unions, the rate is around 10.02% for some of their loans. This gives us a clue about their rates for joint loans.

Rates are based on factors like your credit score, income, existing debts and loan amount.

Shop around and thoroughly compare interest rates and fees before applying. Online lenders often offer the most competitive rates but may have strict eligibility criteria.

Steps to Apply for a Joint Debt Consolidation Loan

Follow these steps when applying for a joint consolidation loan:

1. Compare interest rates from different lenders like banks, online lenders, credit unions, etc.
2. Check your credit reports and fix any errors that could negatively impact approval odds.
3. Calculate the loan amount needed by totalling up existing debts that need to be consolidated.
4. Complete the joint loan application with all required personal and financial details for both co-applicants.
5. Submit necessary documents like identity proof, income statements, bank statements etc. as needed.
6. Carefully review the loan offer – read terms, interest rate, fees, repayment schedule, etc. thoroughly.
7. Formally accept the loan offer if everything looks good. This may require e-signatures from both applicants.
8. Receive the loan amount once all formalities are completed. This is transferred to your bank account.
9. Pay off existing debts by contacting each creditor and making payments to close accounts.
10. Start making new loan payments on time each month. Set payment reminders and automate if possible.

Be sure to make all joint consolidation loan payments on time going forward to avoid late fees and credit damage.

Tips to Improve Your Credit Score

Before applying for a joint loan, take steps to improve your credit score:

• Pay all bills on time each month
• Lower your credit utilisation ratio
• Fix any errors on your credit reports
• Avoid new loan inquiries
• Pay down existing high balances
• Become an authorised user on someone else’s account

This can help boost the chances of loan approval and secure better interest rates and terms.

Should Married Couples Get a Joint Debt Consolidation Loan?

When you’re married, managing money together can be a big part of your life. One question you might face is whether to get a joint debt consolidation loan. 

This means you and your partner combine your debts into one loan. It sounds simple, right? 

But, there’s a lot to think about before you decide.

Firstly, it’s key that you and your partner are on the same page about money. 

Do you both have similar goals when it comes to saving and spending? If one of you is a saver and the other loves to spend, this could cause problems. It’s like being in a three-legged race – you need to move in the same direction to avoid falling over!

Also, having a good plan is important. 

Think of it like planning a road trip. You wouldn’t just jump in the car and hope to reach your destination without a map. 

The same goes for a debt consolidation loan. You need a plan for how you’ll use your money to pay it back, while still having enough for other important things.

Talking openly is another must. 

Sometimes talking about money can be tough, but it’s better to be honest about how much you earn, what you owe, and how you spend. 

Imagine if one person thought they were saving for a holiday while the other thought they were paying off the loan – that would be a big mix-up!

You should also know what could happen if things don’t go as planned. 

For example, if you split up, who pays what? Or, what if one of you loses your job? It’s a bit like having a safety net when you’re walking a tightrope – you hope not to need it, but it’s good to have it just in case.

There are other ways to manage debt, too. Maybe a joint loan isn’t right for you. 

You could look at other options like individual loans or talking to a money expert. It’s a bit like choosing the right tool for a job – what works best for one task might not be right for another.

Lastly, getting advice from a financial expert can be a big help. They’re like a guide on a tricky hike – they know the best path to take and can keep you from getting lost.

So, should you get a joint debt consolidation loan? It depends. 

Talk about it, make a plan, and consider all your options. Then, you’ll be in a better place to make a smart choice together.

Alternatives to Joint Debt Consolidation Loans

If a joint loan does not fit your situation, consider these consolidation alternatives:

• 0% balance transfer credit card – Transfer higher interest balances to a 0% intro APR card.
• Debt management plan – Non-profit credit counselling agencies negotiate lower interest rates on debts.
• Debt avalanche – Pay off debts starting with the highest interest rate first.
• Debt snowball – Pay off debts starting with the lowest balance first.
• Individual refinancing or Solo Consolidation – One borrower refinances/consolidates on their own if they qualify.
• Home equity loan – Interest rates are often lower than personal loans if you have equity.

Each option has pros and cons to weigh based on your specific circumstances.

The Bottom Line

A joint consolidation loan lets you and another person, like your partner, combine your incomes, credit histories, and debts. This approach simplifies managing your repayments.

However, it’s essential to carefully look at all your available options before making a decision.

Both you and your co-borrower need to be on the same page financially and comfortable with the idea of sharing the loan’s responsibility. If one of you can’t make a payment, the other will need to cover it.

When used correctly, these loans are effective in regaining control of your financial situation by consolidating various debts into one manageable payment.

Considering a joint consolidation loan? Reach out to us. We can connect you with a skilled mortgage broker who’ll help tailor a loan solution that fits your unique needs.  

They have the expertise to guide you to a loan that not only meets your requirements but also offers potentially better terms than you might find on your own.