Because they are so easy to get, personal loans have recently grown in popularity. Furthermore, they don’t even require collateral, so when borrowers require immediate loans, they turn to them first. A personal loan only requires the most basic personal and income verification documents with photos as supporting paperwork.
Since personal loans are unsecured, or not secured by any kind of security, lenders can decide whether to approve or deny your loan based on your credit score and income, with both factors bearing equal weight.
You are conscious of the possibility that you might require credit at any time, depriving you of the opportunity to save or make plans. How well are you able to handle circumstances where you require a personal loan but have poor credit or a low income?
What is a co-applicant?
A co-applicant is someone who shares in your personal loan obligations. 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 institutions are now adding personal loans to the list of products that can use this function.
The original applicant and any co-applicants are both equally liable for loan repayment. Both 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 customary loan application from a spouse.
However, other combinations may also be permitted for co-application because a personal loan does not require collateral or pledged assets (such as a house, gold, vehicle, etc.). Once more, this would depend on the guidelines, standards, and practices of your bank or financial institution.
Benefits of including a co-applicant
Since the application will be evaluated jointly, adding a co-applicant can help you raise your income and improve your credit score. Due to this, you can be qualified for a larger personal loan to accommodate your needs. Additionally, it can make you qualified for a loan where a personal application would not be. This could be brought on by a lack of money or a low credit score.
Having a co-applicant enables you to divide the cost of the EMI between two persons, thereby reducing the burden on just one person.
Challenges in making a co-application for a personal loan
Making a co-application appears to be a good option on the surface because it lessens your debt load and allows you the chance to acquire a larger loan or a loan despite having bad credit or a low income.
You might have to overcome a few obstacles along the way, though.
Getting a co-applicant
Your parents, spouse, siblings, and kids are all eligible to apply as co-applicants with the lender. However, it is pointless to include your parents as co-applicants if they are retired or have poor credit.
More applicants mean more paperwork
More candidates will inevitably result in twice as much labor. Both candidates’ information needs to be filled out, which will take additional time and effort.
Arriving at a consensus regarding tenure
It’s nice to have a co-applicant, but submitting a joint application entails sharing responsibility. Your loan can be approved with a co-applicant, but what happens if you can’t convince them to accept joint responsibility for the EMIs or in the event of default? The loan will thereafter be entirely your responsibility to repay. Given that his risk increases and the personal loan rates are not completely safeguarded, the lender might not consent to such a plan.
More time for approval
A co-application loan could take longer to approve and disburse than a typical personal loan, which typically takes 24-36 hours. As there will be two sets of paperwork to review, the lender may need to take additional time processing the application. The disbursal process will inevitably be hampered by this.
The feature is lender specific
This co-application service for personal loans is not available from all lenders. If you and your lender get along well, you might be able to ask for the same. Many online fintech lenders do not include a co-applicant clause in their applications. If you are considering submitting a co-application, you should confirm that the lender is willing to accept it.