Life involves unexpected costs and unforeseen circumstances. A lack of funds can affect anyone. These emergencies are unpredictable, thus it is impossible to always be ready for them. Due to the varied uses and often lower interest rates than credit cards, personal loans have grown to be one of the most common types of debt. A personal loan can be used for practically anything, including unexpected costs, home improvements, weddings, funerals, vacations, and more.
You do not need collateral to apply for personal loans because they are unsecured loans. With few documentation requirements, personal loans are quick and simple to process. Personal loans aren’t secured by anything, thus the lender bases the loan decision on the borrower’s income and credit score. What happens if your salary is insufficient or your credit score is low? What options do you have if you still want to apply for a personal loan?
You would have to apply for the loan in this situation with a co-applicant or co-borrower.
Who is a co-applicant?
A co-applicant is someone who shares in your personal loan responsibilities. When it comes to home loans, co-application is a regular element, with couples being the most popular co-application combination. Some banks and financial organizations are increasing including personal loans in the scope of this service.
Both the principal applicant and any co-applicants are equally liable for loan repayment. The applicants’ credit histories and incomes are taken into consideration while making the decision. Both applicants’ credit ratings suffer in the event of a default, and the lender is fully within its rights to take legal action against both of them.
Who can be a co-applicant?
You can add a co-applicant to your personal loans, such as your spouse, parents, or siblings. Only specific pairings, such as parent-son, brother, and unmarried daughter-father/mother, are permitted when applying for a home loan, in contrast to the normal loan application from a spouse.
However, other combinations may also be permitted for co-application since a personal loan does not require collateral or pledged items (such as a house, gold, vehicle, etc.). Once more, this would depend on the guidelines, standards, and policies of your bank or financial institution.
Benefits of having co-applicant
Lenders frequently review your credit history, debt-to-income ratio, and other personal loan eligibility requirements when you apply for a loan to decide the amount of the loan, the interest rate, and the period of the loan. You may be eligible for a loan with a reduced interest rate and other more favorable terms if you apply with a co-applicant who has a higher credit score than you.
Additionally, because the salaries of two applicants are taken into account, you may be granted a larger loan as a result. If a lender is aware that you have two streams of income that can be used to pay back the entire loan, they can view you as a less risky borrower.
Additionally, since another individual is equally responsible for making payments on the personal loan, sharing responsibility may reduce your odds of missing a payment if you were to lose your source of income. However, keep in mind that missing payments may have a negative effect on both borrowers’ credit.
Challenges in making co-applicant for a personal loan
- Getting a co-applicant
- More applicant means additional paperwork
- Sharing joint responsibility for the EMIs.
- More time for approval
- Not all lenders offer joint personal loans
What do you need?
The procedure is easy. Both applicants’ information must be entered into an online application form. The following documents must be submitted:
- Identity proof
- For the past three months, both candidates’ salary slips or income proof
- both applicants’ most recent six-month bank statements
The lender will examine all the documents and confirm the information supplied in the application. Both candidates’ credit histories will be checked. The loan will be granted and the funds disbursed in accordance with the findings of the check. Due to the complexity involved, this will take longer than a typical personal loan.