When you apply for a personal loan, the lender determines whether you are eligible for one. Your loan will be accepted if you match their eligibility requirements. They can, however, deny your loan application if you do not meet the personal loan eligibility requirements. Alternatively, they may recommend that you apply for a joint personal loan with a co-applicant. Having a co-applicant makes getting a loan much easier.
Who is a co-applicant?
A co-applicant is someone who shares your personal loan liability with you. When it comes to home loans, co-application is a regular element, with spouses being the most common combination. Some banks and financial institutions are now extending this feature to personal loans as well.
A co-applicant is just as accountable as the principal applicant for loan repayment. The credit ratings and earnings of both candidates are considered and used to make the choice. In the event of a default, both applicants’ credit ratings are affected. And the lender is completely within their rights to take action against both of them.
Who can be a co-applicant?
A Co-applicant on your personal loan could be your spouse, parents, or siblings. Other than the standard loan application from the spouse, only specific combinations are authorized in the case of home loans, such as parent-son, brothers, and unmarried daughter-father/mother.
However, because a personal loan in India does not require security or pledged assets (such as a home, gold, or vehicle), various co-application combinations may be permitted. This would be determined by your banker’s/financial institution’s rules, regulations, and practices.
Benefits of including co-applicant
Because the application will be looked at as a whole, including a co-applicant can help you improve your credit score and increase your income. This may qualify you for a larger personal loan to suit your requirements. It might also make you qualify for a loan that you wouldn’t have been able to get if you applied on your own. This could be the result of a financial deficiency or a poor credit score. Having a co-applicant allows you to split the EMI burden between two persons, preventing one person from bearing the entire burden.
Challenges involved in co-application for a personal loan
A co-applicant lessens your loan repayment burden and improves your chances of getting a loan. Obtaining a co-applicant for your personal loan, however, poses certain difficulties.
Getting a co-applicant
Not everyone will be fortunate enough to find a co-applicant who is employed and has a decent credit rating. Even if your parents are willing to be your co-applicant, if they are retired or do not have a (high) credit score, the goal of having them as a co-applicant may be negated.
With more applications, you’ll have to do twice as much work. You’ll have to fill out information for both candidates, which will take additional time and effort.
Agreement regarding repayment of the loan
If the primary applicant defaults, the co-applicant is equally liable for timely repayment of the loan, and their credit score is at risk. If your co-applicant does not want to be a part of the loan repayment and has no input in how the loan is used, it will be completely your obligation to pay off the loan. It may be tough to achieve an agreement in situations like these.
More time for approval
A co-application loan may take longer than a standard personal loan, which is authorized and disbursed within 24-36 hours. Because there will be two sets of paperwork to examine, the lender may have to spend additional time processing the application. The disbursement procedure will undoubtedly be slowed as a result of this.
Not all lenders offer this feature
Joint personal loans are not available from all banks or financial institutions. Whether you have a solid relationship with your bank, you could ask if you can apply for a personal loan together.
Having a co-applicant for a personal finance can help you get a bigger loan with lower interest rates. You should be aware, however, that they have the potential to harm your credit score. To avoid unpleasant surprises in the future, you should check the credit score of the co-applicant before taking out a joint personal loan.