5 questions to ask before getting a joint loan with your partner

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When you get into a romantic relationship with someone, there often comes a time when you get involved financially as well. You can decide to buy a house together. Or you can just decide to make big purchases together like furniture for your shared apartment, a car you can share, or a wedding.

When you decide to band together to get things done, there may come a time when taking out a joint loan might make sense. For example, you could be a co-borrower on a car loan, or get a joint mortgage or a personal loan from which you both are borrowers.

Taking out a joint loan is a big problem as both co-borrowers are legally obligated to repay the entire amount. This means that if your partner does not live up to their end of the bargain or if you separate and your partner refuses to pay, you may have to pay the full loan amount. And your credit could be damaged by your partner’s irresponsible spending behavior.

You don’t want to risk your financial future if you’re not really ready to commit to a joint loan with your partner, so before signing up to be a co-borrower, be sure to ask yourself a few key questions first. .

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1. Do you know each other’s credit scores?

The rate you get on a joint loan will depend on both of your credit scores. If your partner has poor credit, you may not be able to get loan approval at all, or you may not be able to get a loan at a reasonable rate. You need to be prepared to share your scores and credit history in order to see if borrowing is a meaningful possibility.

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Knowing your partner’s credit rating also gives you insight into what kind of borrower they are. If your partner has a perfect credit score, you probably don’t have to worry much that they won’t pay off the loan – after all, they won’t want to ruin that perfect score. But if your partner’s credit history is marred by bankruptcies, depleted credit cards, court judgments, and late payments, you are taking a huge risk by borrowing with someone who has proven to have credit problems. credit in the past.

2. Do you have other combined financial accounts?

Having a joint bank account is not a prerequisite for getting a loan, but sharing other aspects of your financial life is helpful. When you have joint accounts, it may be easier for both of you to deposit your funds into the account to make loan repayments. And you’ll also have a pretty clear idea of ​​what your partner earns and spends if you’ve combined other financial accounts.

If you don’t have a joint account, talk to your partner before getting a loan together about how you plan to pay it off. Will one of you pay the entire bill and the other write a check for half? It’s also a good idea to know how much money your partner has in the bank. If your partner doesn’t have savings, they might have a hard time paying off their loan if there is an income disruption.

3. Are you comfortable with your partner’s spending habits?

Before you get into debt with someone, you want to make sure that your partner is responsible for borrowing and spending.

Someone who spends every last dollar and is in debt regularly is going to be at quite a significant credit risk, while someone who is careful about their spending is likely to take borrowing much more seriously.

If your partner seems to have no control over where their money is going, you can’t be sure that they’ll cut back enough on their spending to make their loan payments. So you should think twice before borrowing with it.

4. Can you talk freely about money?

When you take out a loan together, you need to be able to talk about who will pay it, how it will be paid, what if one of you can’t make a payment, and how you will make sure the loan is paid off. on time. In other words, you need to have regular conversations about money, at least about the loan.

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If you’re not really comfortable sharing details about your money, or your partner doesn’t want to open up to you, you may not be having the conversations you need to make sure the loan is going to be. reimbursed on time and in full. You should work on this aspect of your relationship and practice being open about your finances before borrowing money together.

5. Do you have a plan for what will happen if you separate?

No one likes to think about breaking up, but it does happen sometimes. If you are married and divorced, there is a formal process for deciding what happens to shared assets and debts. But if you are not married, it can become much more difficult to determine who is responsible for paying off the loan you took out together. And if you’ve taken out a loan to buy a common asset, like a sofa, a car, or a house, there could be arguments about what happens to your common property.

You need to make sure you discuss what will happen to both whatever you buy with the loan proceeds and what will happen to the debt you have incurred together. While you have this conversation, remember that the creditors will both hold you accountable if you are co-borrowers, even if you both agree that your partner should be the one paying after a split. So, if your partner promises that he will take the loan repayments, but then defaults, the creditor could sue you.

One possible option you should consider is for a partner to agree to keep the asset and refinance the loan in their own name in the event of a break-up. Depending on the value of the object and the specifics of your situation, the partner who keeps the asset may also need to buy back the interest of the other partner by repaying part of the payments already made.

Whatever you decide, make sure you have a serious conversation about the outcome of a breakup before taking out a loan – and consider entering into a written agreement so that there is no confusion over liability if the day comes when you decide to separate.

Do not take out a solidarity loan before you know the answers to these questions

Taking out a joint loan is a big deal, especially if you are not married and the decisions about the loan will not be part of a formal divorce settlement. Before agreeing to share your debts, make sure that you are comfortable with the way your partner is spending money, that he has traded credit scores, that he is able to talk about it. money together and you know what will happen if you break up.

If you’ve been together for a while and are confident that your partner will be responsible for paying back what you owe, then you can say yes to a joint loan when it helps you meet your financial goals. Just make sure that you are both on the same page about repayment so that the money you borrow doesn’t cause big disagreements in the future.

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