Personal loans are considered a great tool for financing big purchases or debt consolidation and are very popular due to the loan’s easy availability. What makes them borrower’s first choice is that they are unsecured loans to meet personal needs, i.e. they do not require collateral and are almost immediately credited. Furthermore, the documentation for a personal loan is minimal, which includes basic personal details and income proof with photographs. However, getting a personal loan approved requires a good credit score.
How to manage if you have a less-than-perfect credit score? Can you still apply for a personal loan? Fortunately, yes! There is a way for you to qualify for the personal loan eligibility – you can apply with a co-applicant who has a better and stronger credit profile than you.
Who is a Co-applicant?
A co-applicant is the individual who applies for the loan alongside you and shares legal responsibility for the loan that you are taking out. And since you are both sharing responsibility of paying it back, the co-applicant or co-borrower becomes a part of the goal you are funding.
This feature is common in home loans and is now being added-on to personal loans as well. While considering the application, credit scores, and income of both the parties are taken into account, and they both take a hit.
Who can Become a Co-applicant?
Financial institutions do not allow just about any person to be a Co-applicant. Only spouses, parents or siblings can become Co-applicants of your personal loan. Since personal loans do not require collateral, other combinations may also be applied to co-applicant, depending on rules, regulations and policies.
What to Consider Before Signing a Personal Loan with a Co-applicant?
Having a co-applicant has many advantages.
- Increases the chances of loan approval – Due to the shared responsibility of the loan, the chances of the loan getting approved are greater.
- Qualify for more favorable terms – Co-applicant helps you qualify for lower interest rates than you would have gotten if you’d applied for the loan on your own.
- Helps in Loan Eligibility – If your credit score or income is low and doesn’t meet the requirements, co-applicant fills in the gap as their credit score and income are considered as well.
- Lessens the Burden – Having shared responsibility of the loan lessens the loan burden off your shoulders for the time being.
- Applications for a larger amount – When both the credit scores and incomes are combined, you can apply for a larger loan amount.
However, getting a co-application in an application has some downsides too.
- Finding a co-applicant can be hard sometimes. Your parents might be retired or not have a good credit score, or your partner may not have a good income.
- Getting the required documents ready can be a hassle because the co-applicant has to have the same set of documentation as you.
- Not all financial institutions accept co-applicants.
- The application process might get delayed.
How to Apply for a Personal Loan with a Co-Applicant?
The application process for a personal loan with a co-applicant is basically the same as applying for it on your own – except you need to provide personal information and income information of both the borrowers. You need to provide the following details –
- Names, addresses, and identity proofs of both the borrowers.
- Income and Credit Score information
- Information on any outstanding debts
These are the main documents to meet personal loan eligibility. Alongside these main documents, you may be asked about some other documents. You are required to submit the documents personally. The application for a personal loan may take 7-10 days to get approved.
Whether you take the loan on your own or with a co-applicant, make sure the repayments are prompt as they will affect your score and future credit requirements.