Joint Borrowing – What You Need to Know

Rights to Disclosure If you are taking out a credit card or obtaining a loan with another person, you have the right to receive certain disclosures if the lender is an FRFI (federally regulated financial institution). Any FRFI that agrees to lend money or issue credit must provide joint borrowers with a detailed outline of the fees and interest rates they will have to pay on a loan or credit account. Keep the Line of Communication Open So, both borrowers should obtain a statement each month about their account. Receiving a monthly statement keeps each borrower apprised of the status of a loan account as well as gives them a quick overview of the payment history. In fact, it is doubly important (no pun intended) that each borrower on an account receive a monthly statement so both parties understand their payment obligations and the line of communication remains open. Teamwork – An Important Component in Paying Back a Joint Loan Amount However, that being said, you can still waive your legal right to separate disclosures. Both borrowers can consent, either in writing or verbally, to have disclosures sent to just one of the holders on an account. When two people consent to securing a loan then, it’s essential that they work as a team to pay back the loan amount. Therefore, it’s usually not a good idea to have one of the parties handle all the paperwork and payments on a joint account, even if he or she is considered dependable. Both parties should equally work toward paying the obligation to avoid any glitches in communication that can otherwise result. Your Obligation Most couples will eventually agree to commit themselves some type of joint financial obligation – whether it is a joint banking account or a secured loan, such as a mortgage. Taking out a loan with someone else gives you the latitude to borrow more money than you could yourself. However, also be aware that you will be asked to pay off the entire debt if the other party is unable to pay off the loan amount. Many joint borrowers are under the mistaken belief that they are only responsible for “their half” of the loan amount. Unfortunately, though, that is not the case. When you sign a loan contract as a joint borrower, you agree to pay the other party’s “share” of the debt as well. So, contractually, you are obligated to pay off the entire amount if the other party cannot make his payment will not fulfill his part of the agreement. Is the Other Party Dependable? Think before You Sign on the Dotted Line Generally, joint borrowers take out loans in the form of a mortgage (a secured loan account) or an unsecured line of credit. So, if you are thinking about taking out a loan with someone else, you better make sure that he is a good payer. If he is not dependable in this respect, you will be held responsible for the entire amount. Consider what could happen if the other party could not pay. For example, if your partner passed away, could you adequately handle the payment yourself? Being a joint borrower carries certain risks as well as advantages. However, to realize the advantages, you have to minimize the risks. Don’t sign any joint agreement unless you feel confident you can handle the debt, if necessary, on your own, or you are signing the contract with someone who is equally dependable. Stay on the Same Page A joint loan can improve your ability to obtain credit – provided you and the other party have good credit scores. When credit is obtained jointly, both of the parties’ credit histories are linked. So, if you want to apply for a future loan, a lender would look at your credit file and the other borrower’s history as well. So, again – make sure that you and the other borrower are on the same page when it comes to payback conditions and terms. Joint lending then can benefit both parties if they make every effort to work together to realized their financial dreams and goals. If you are married, you and your spouse can build a good life for yourselves by outlining a financial plan that enables you to take out a loan for your home and maintain two or three credit cards – one of which is set aside for emergencies. Keep on an Equal Footing However, once more, before you embark on taking out a joint loan, make absolutely certain that you both are on an equal footing with respect to your credit rating and mapping out a financial plan. Budgeting should be a joint effort if you are serious about applying for any kind of joint funding. Also, make sure both your credit scores are in good shape before you apply and clean up any discrepancies. Because your credit profiles are linked, both of your credit ratings must look equally good. Otherwise, you will defeat the whole purpose of applying for joint financing. Obtain Financial Counseling if You Can’t Agree on How to Spend and Save If you and your better half have differences with respect to spending and saving, get those issues resolved before both of you apply for a loan. Talk to a financial counselor to obtain the advice you need to get back on track financially.