Co-applicant in Loan: Meaning, Eligibility and Benefits

Loans are one of the best ways to meet your financial obligations. But do you know that applying for a loan with a co-applicant can help you avail of a loan at favourable terms? Yes, if you apply for a loan with a co-applicant who has a good credit history and meets all the eligibility criteria, lenders may offer you a loan on good terms. But is that all? No, in this blog, let's unveil what a co-applicant is and the benefits of having one when applying for a loan. So, let's get started!

Who is a Co-applicant in Loan?

A co-applicant is an individual who applies for a loan along with the primary applicant and agrees to share the loan's legal and financial obligations. This person can be a family member, such as a spouse, parent, or sibling, or, in some situations, a business partner. The co-applicant may or may not be a co-owner of the asset that is financed. A co-applicant with consistent income, solid credit history, and financial stability can drastically improve the odds of loan approval.

A co-applicant serves as an additional safety net for lenders. If the primary borrower defaults, the co-applicant has the legal liability to repay the debt. For primary borrowers, on the other hand, they help cover the gap between loan eligibility and get favourable terms.

What are the Benefits of a Co-applicant?

A co-applicant plays a crucial role in any loan process, sharing financial responsibility and impacting factors such as loan eligibility, repayment, and legal obligations. Here are the key benefits of a co-applicant in a loan:

1. Meeting Eligibility Criteria

Taking into account both applicants' combined income increases eligibility and allows for a higher loan amount. Couples, particularly those with individual incomes, are also eligible for competitive interest rates and faster funding approvals.

2. Lower Debt-to-Income Ratio

Lenders normally prefer to approve home loans with a debt-to-income ratio of less than 30-40%. Adding a co-applicant raises the combined income while decreasing the total DTI ratio. This increases your chances of loan acceptance and could qualify you for a larger loan amount.

3. Improved Credit Score

Sharing the responsibility of a loan through co-applicants encourages consistent payment habits and financial discipline. Timely repayments contribute to building a strong repayment track record with financial institutions. Over time, this strengthens your overall financial standing and increases trust with future lenders.

4. Better Interest Rate

When two applicants share a financial commitment, lenders consider the application more secure. This stable income source and a good repayment capacity from both parties result in favourable loan terms. Such strong financial profiles further lower the financing expenses over the loan term.

Benefits of a Co-applicant in Home Loans or Loan Against Property

Here are the key benefits of having a co-applicant in a home loan or a Loan Against Property: 

1. Access to Special Loan Products

Many banks and financial institutions provide co-applicant-exclusive options, such as lower processing fees or programs targeted toward female applicants or first-time purchasers.

2. Increased Loan Eligibility

Adding a co-applicant enables the two applicants to borrow a larger loan amount by pooling their incomes together. This can allow the acquisition of a larger or superior home and the selection of desirable locations.

3. Faster Loan Approval

Lenders prefer joint applications with good combined credit scores, and this increases the likelihood of approval and could even lead to a lower interest rate. This is particularly true in cases where the co-applicant has a high credit score or is a woman (certain banks have special lower rates on women co-borrowers).

4. Claim Tax Benefits Individually

When both the primary applicant and the co-applicant share the property rights and contribute to the home loan repayment, each can claim tax benefits:

• Up to ₹1.5 lakh under Section 80C of the Income Tax Act (on principal repayment)

• Up to ₹2 lakh under Section 24(b) of Income Tax Act (on interest payment)

This means a combined deduction of up to ₹3 lakh per year (₹1.5 lakh each) is possible, significantly reducing the total taxable income. These tax deductions are only available if both applicants have taxable income, are paying the EMIs, and are listed as co-owners.

5. Shared Financial Responsibility

The joint home loan agreement makes both the primary borrower and the co-applicant equally accountable, which means they share the legal responsibility for repaying the debt. This arrangement guarantees financial continuity even if the primary borrower defaults, providing additional security to financial institutions and lowering the danger of loan repayment gaps.

How Does a Co-applicant Help Build a Stronger Application?

A strong credit profile is really important when applying for different types of loans. It not only helps you get favourable terms but also reduces the overall interest paid. But also helps you access a higher loan amount and get a loan approved faster.

For Example, Rahul is applying for a Personal Loan of ₹10 lakh for 5 years. Rahul has the option of applying for the loan alone or with his wife, Snehal. Here is how joint loan helps you save:

Borrower's Name	Loan Amount	Interest Rate	Monthly EMI	Total Interest Paid
Rahul	₹10 lakh	14%	₹23,269	₹3,96,095
Snehal	₹10 lakh	14%	₹23,269	₹3,96,095
Joint Personal Loan (Rahul+Snehal)	₹10 lakh	10%	₹21,248	₹2,74,823
Total Savings on Interest				₹1,21,272

Joint applicants with high credit ratings are viewed as less risky by lenders. Banks are more assured that Rahul and Snehal will repay the loan on schedule because of their joint application.

Tips for Getting a Joint Loan Approved with a Co-applicant

How do you achieve higher loan eligibility with a co-applicant? Here are the tips for improved eligibility:

1. Improve Your Credit Score

Build a strong credit report by making timely repayments, maintaining low credit utilisation, and regularly checking for and correcting any differences in your credit report.

2. Increase Income and Savings

You can improve your chances by increasing your income and savings before applying for the loan.

3. Select the Right Co-applicant

Select a co-applicant with a good credit score (preferably above 750), steady income and a low debt-to-income ratio. A co-applicant improves the chances of getting a loan, as a co-applicant with good financial standing increases your loan eligibility and the probability of getting the loan.

4. Combine Incomes

You can apply together to combine both incomes, which increases the total repayment capacity and enables you to get a higher loan amount.

5. Good Credit Profiles

The credit history of both applicants will be analysed; therefore, one should have good credit behaviour and settle any pending dues before the application.

6. Co-applicant as Family Member

In case of home loans, the co-applicants are typically required to be immediate family members such as spouse, parents, or children, according to RBI and lender regulations.

To Conclude

Applying for a loan with a co-applicant boosts the loan approval and allows you to share the repayment responsibility. It allows both the primary borrower and the co-applicant to enjoy the benefits of the loan without any financial stress. However, you must choose your co-applicant wisely, as it affects both the application and repayment.

At Poonawalla Fincorp, we know that qualifying for a loan may seem challenging given the stringent eligibility criteria of most lenders. This is why we have put in place simple eligibility criteria that make it easy to access different types of loans. All these loans offer competitive interest rates, flexible repayment terms, and a simple application process. So wait no more, apply today!

Frequently Asked Questions

Does being a co-applicant affect your credit score? 

Yes, being a co-applicant can affect your credit score. Merely becoming a co-applicant won’t impact your credit score, but any missed or delayed repayments by the primary applicant will reflect on your credit report as well, potentially lowering your score.

Can I remove a co-applicant from my loan later?

Yes, but only in certain conditions. The primary applicant must refinance the loan in their name, and the lender must approve the new application based on their income and creditworthiness.

Will my home loan be rejected if the co-signer has a poor credit history?

Yes, it could be. A co-applicant with a poor credit record can lower your chances of loan approval. A co-applicant with a poor credit record can lower your chances of loan approval or result in higher interest rates. Therefore, it’s advisable to apply with someone who has a good credit history.

Can my friend be a co-applicant for my loan?

Generally, no. Most lenders in India allow co-applicants who are close blood relatives, such as parents, children, or spouses. Friends are rarely permitted due to legal and financial implications.

Can a co-applicant continue to repay the home loan if the principal applicant fails or dies?

Yes, the co-applicant is equally liable, bearing equal responsibility for the home loan repayment. If the primary borrower fails to repay or dies, the co-applicant must continue repaying the debt to avoid legal and financial consequences.