Personal Loans are one of the most popular and preferred mediums of taking a loan for the requirement of additional funds. The loan is structured in a way that does not require any collateral from you, hence it is important to understand that the bank or NBFC considers some important factors like income level, credit score, employment & other factors to calculate the repayment capability.
Lenders rely on your tax returns, bank statements, and other similar paperwork to get clarity on the income levels of the applicant. One particular route that has been preferred by many customers in India and across the world is to add a co-applicant to the loan application and make it a Personal Loan with a co-applicant as it further strengthens your case.
Getting a Personal Loan with a co-applicant is mostly popular with a home loan due to its large ticket size and longer tenure; lenders have now started to extend this option to Personal Loans as well. Typically, couples opt for a spouse as a Personal Loan with a co-applicant.
We are going to understand the co-applicant mechanism and how a Personal Loan with a co-applicant is a better mechanism for getting a loan for you.
Who is a Co-applicant?
A co-applicant is a person who can take responsibility for a Personal Loan along with you. Getting a Personal Loan with a co-applicant is particularly popular in the case of home loans for the past many years with a spouse being the preferred choice. It is now being seen that Personal Loans are being taken by couples with spouse as co-applicant. This means that the eligibility of both the applicants will be checked and the joint Personal Loan eligibility will be accessed.
Who can be a Co-Applicant?
A spouse is the most common co-applicant for a Personal Loan. However, parents, siblings, or children can also be made co-applicants for a Personal Loan.
What is the role of a Co-applicant?
In simple terms, a co-applicant is responsible for the repayment of the Personal Loan to the lender. For the processing of the application, the income level and credit score of both the applicants are considered to calculate personal loan eligibility. Similarly, in case of default on the Personal Loan, the credit score of the couple i.e. both the parties will be hit and the lender has the right to initiate proceedings against both the parties if it deems fit.
Having your spouse as the co-applicant on the Personal Loan is very helpful in processing and approval. It is particularly helpful in cases where the primary applicant has a low credit score or a low level of income.
Having a couple as a co-applicant for a loan can help in several ways which can further strengthen your application.
1. Income level:
It helps in increasing the overall income level of the loan application which can get you a higher loan amount as compared to a single loan application. For instance, in case you have an annual income of ?10 Lakh and you were offered a maximum Personal Loan of ?25 Lakh for 5-year tenure by the lender. In case you add your spouse who also has a ?10 Lakh annual income, the lender will consider the income of both the applicants and will be able to offer a bigger ticket size loan as the total income has moved up.
2. Credit score:
As credit score is one of the key parameters on which a Personal Loan is approved or rejected, it is important to understand that having your spouse as the co-applicant on the loan application helps in further strengthening the credit score. For instance, in case you have a poor credit score for a variety of reasons, having a co-applicant with a strong credit score will improve your chances of getting approval on the loan.
3. Repayment responsibility:
In case you opt for your spouse as the co-applicant on the loan, it helps in providing a sense of comfort to the lender as the responsibility of repaying the loan rests with both the applicants. You can always split the responsibility and the burden of repayment. It will help in also splitting the tax benefit on the interest component.
Co-borrowing or getting a Personal Loan with a co-applicant is helpful in the case of Personal Loans in a variety of ways. Some of the key benefits of co-borrowing are as follows:
1. Better eligibility:
As the income of both applicants is taken into consideration while calculating the loan eligibility, co-borrowing helps in taking a higher ticket Personal Loan as compared to a single applicant. A co-application of a couple for a Personal Loan helps in getting better eligibility terms as compared to a single application. This is especially true for couples where both partners are working and have a steady source of income.
2. Lower debt to income ratio:
One of the primary challenges in taking a Personal Loan is a higher debt-to-income ratio. It is the percentage of debt as part of your monthly income which is calculated while approving the Personal Loan. In case you apply for a Personal Loan with your spouse as the co-applicant, it helps in lowering the debt-to-income ratio. Typically, it has been seen that lenders do not like approving loans that take your debt-to-income ratio over 40%. If your spouse is a co-applicant on a Personal Loan then it helps in keeping it less than 40%. Hence, it will certainly improve your chances of getting approved for a high amount of Personal Loan.
3. Helps in supporting credit score:
Co-borrowing plays an integral role in supporting the credit score. As the credit score of both applicants is considered, it is important to have another applicant, in case your spouse has a better credit score. At the same time, in case the credit score of your partner is not so great as compared to your credit score, adding a co-applicant will only hamper your chances of getting approval on a Personal Loan.
4. Better interest rate:
As the lender decides interest rate on a Personal Loan after considering some factors like income, credit score, and loan size, it is possible to secure a better interest rate by having a couple as a co-applicant on a Personal Loan. Since the lender has both partners as co-applicants, there is a better chance of repayment which may allow the lender to lower the Personal Loan interest rate.
Also Read :- Emergency Loan for the Unemployed Person
Choosing to add a co-applicant to a Personal Loan is a critical decision that can impact the fate of your loan application. Since joint Personal Loan eligibility is checked in cases of Personal Loan with a co-applicant, here are some factors to consider while choosing to add your spouse as a co-applicant on a Personal Loan:
1. Credit Score:
The credit score should be considered before deciding to add your spouse as a co-applicant on the Personal Loan. It only makes sense to add your spouse as a co-applicant on the Personal Loan if he/she has a better credit score as compared to yours. The positive impact on the credit score helps in securing a Personal Loan at a better interest rate. At the same time, the rise in total income helps in getting a higher amount Personal Loan. If the co-applicant’s credit score is less, then the joint Personal Loan eligibility will also be impacted negatively.
It is important to understand that the liability of repaying a Personal Loan lies on the shoulders of both applicants. In case your co-applicant is not able to pay back the loan in due course, it will be the responsibility of the other applicant to continue to pay the remaining outstanding amount. Therefore, it is better to check if the co-applicant is eligible for payment in cases of joint Personal Loan eligibility.
In case you choose to add your spouse as a co-applicant on a Personal Loan, always remember that both of you would need to submit documents as part of the joint Personal Loan eligibility application. As a result, processing a Personal Loan application with co-applicants takes more time as compared to a single applicant.
There are several advantages of having a co-applicant on a Personal Loan. Some of the major advantages are as follows:
1. Higher loan amount:
As the income of both applicants is taken into consideration for checking the maximum loan amount, there is a high chance of getting a bigger ticket size loan due to the couple being the co-applicant.
2. Shared EMI:
A couple co-applicant on a Personal Loan turn into co-borrowers after their loan application is approved. The co-borrowers on a loan help in sharing the EMI burden regularly. You can discuss the arrangement with your partner and instruct the lender to deduct the EMI from both your accounts accordingly. This also brings in shared responsibility and a shared sense of ownership of the assets being purchased from the Personal Loan, if any.
3. Better terms:
With the couple being a co-applicant, you can secure a loan on better terms as compared to a standalone application. The lender may sweeten the deal by offering a lower interest rate or lowering other charges which makes it more attractive for the couple. The lender may prefer to offer better terms where there is a spouse as a co-applicant as compared to a single applicant.
As there are two sides to a coin, the advantages of a couple co-applicants don’t come without their own set of challenges. Some key challenges of a couple co-applicants are as follows:
1. Additional documentation:
As you decide to file a Personal Loan with your spouse as a co-applicant, you would need to submit additional documentation for both applicants. For instance, you would need to submit income and address proofs for both the applicants in addition to the other documentary requirements. Getting these documents ready for submission may require additional effort from your end.
2. Longer processing times:
As there are two sets of documents that are being submitted, you would need to wait a little longer for processing these documents. In case of emergencies where you may require funds at a short notice, getting the paperwork ready and waiting for application processing in case of the co-applicant may not be a very good idea. While Personal Loans are known for quick approval and processing, having another set of documents for the Personal Loan application may take more time for processing and loan disbursal.
3. Repayment dispute:
Both partners are responsible for the repayment of a loan in case you choose to add your spouse as a co-applicant on the Personal Loan. In case one partner is not able to pay his/her share in the monthly EMI, it will be the responsibility of the other partner to make the payment. As a result, it may bring repayment disputes that can eventually spoil the relationship. As the relationship with your spouse is at stake, any dispute in the Personal Loan repayment may not end very well.
4. Limited options:
Since not too many lenders allow for a joint application on a Personal Loan, you have limited options when it comes to taking a Personal Loan with your spouse as a co-applicant. Also, many modern fintech companies allow for short-term Personal Loans and extend a line of credit to consumers at a short notice. These options may not be available in case you are specifically looking for a co-applicant application for a Personal Loan.
Adding a co-applicant on a Personal Loan is a good option when you are either looking for a bigger ticket-size loan or want to share the burden of the loan with your spouse. It may also prove to be a healthy option if you are looking to improve the chances of your loan approval by adding a co-applicant that has a good income source and better credit score. Always remember that a co-applicant with a poor credit score further lowers your chances of getting approval on a Personal Loan. A co-applicant’s credit score over 750 should be able to strengthen your chances of getting a Personal Loan.
Poonawalla Fincorp allows you to apply for a Personal Loan application with your spouse as a co-applicant. Submit your application for a Personal Loan with Poonawalla Fincorp and enjoy competitive interest rates and best-in-class service.
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Shambu| April 24, 2023
We are looking for a personal loan, please suggest how to apply me and my wife as a Co-applicant
Shailendra Bharti| February 24, 2023
Hi Team,I want an loan of 18 Lakh .. Please confirm if we (me and my wife) can apply together to get the loan..