Harshala Chandorkar | Tuesday, 12 May 2015 – 5:20am IST | Agency: dna | From the print edition
Sometimes you may want to buy a house of a greater value, but you may not be eligible for a higher amount of loan from the bank. This is where opting for a joint loan comes handy. Before opting for a join loan with your parents or spouse you must first understand the implications of this loan.
A home of our own is an aspiration that most of us strive for and a home loan is usually the biggest financial liability in an individual’s life that needs to be carefully considered. Sometimes you may want to buy a house of a greater value, but you may not be eligible for a higher amount of loan from the bank. This is where opting for a joint loan comes handy. Before opting for a join loan with your parents or spouse you must first understand the implications of this loan.
Understand the implications
A joint loan is usually taken to meet the eligibility criteria by supplementing the co-applicant’s income along with the applicants for a better and higher loan eligibility. You can consider the option of taking a joint loan with either your parents or your spouse as it proves to be a more convenient approach for qualifying for a higher value loan and also manage your liabilities jointly.
While a joint home loan increases your eligibility it also distributes the liability of payment and impacts the credit history and credit score of both the borrowers. Therefore, it is vital for both the parties to understand their responsibilities towards the loan and its impact on their finances.
Responsibility of the co-applicant
A co-applicant in a joint loan refers to a person who applies along with the primary applicant for a loan. This is done so that the income of the co-applicant can be used to supplement the borrower’s income and increase his/her eligibility or credit limit. As a co-applicant you are completely responsible for the loan if your partner defaults or under any circumstances is unable to pay back the loan. Therefore, a co-applicant’s Cibil TransUnion Score and report is also checked by lenders before deciding on the loan application. If a co-applicant’s score is low, it may negatively impact the loan application.
Both the borrowers’ credit history and score is impacted by a joint loan.
A joint loan account is reported on both the individuals Cibil reports. If the responsible party does not pay on time or does not pay at all, this credit behaviour is reflected on the other party’s credit report as well. In addition, creditors can approach both parties for payments and collections. On the other hand, both the borrowers’ Cibil scores get negatively impacted in case either of the partners default on the payments of the loan EMIs. Hence, it’s imperative that both the borrowers on the loan should ensure paying the EMIs regularly on the due date, month on month.
With a fair understanding of the benefits of opting for a joint loan, given below are some Do’s and Don’ts one must consider before applying for a joint loan:
A joint loan requires both the applicants to furnish the necessary Know Your Customer (KYC) documents, bank statements, employment certificate and IT returns. Ensure that you have the most updated copies of these documents ready with you.
Make sure you both check your Cibil report and score to understand your credit history. If your credit report shows delinquencies and defaults and you credit score is low then make efforts to improve it before you apply for the loan. This will help you avoid unpleasant surprise in the form of loan rejection.
If you have already availed a joint loan then ensure that you keep a track of the repayments and are aware of your liabilities in the event that variations are made to the terms and conditions of the loan
Do not default on monthly instalments as it will have a negative impact on both borrowers’ credit history.
The writer is senior vice-president – consumer services and communications, Cibil
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