Does Co-applicant Affect Personal Loan Eligibility?

A lot of individuals these days are trying to navigate their finances by either getting a credit card or availing a loan from a bank or a lender to take care of their lifestyle spends. But not everybody can avail a loan on their own and there are many factors that affect this phenomenon. This is where a co-applicant comes into the picture. 

As one sails through the world of Personal Loans, we might find ourselves wondering how a co-applicant can impact our loan eligibility. The role of a co-applicant is not always made clear, and it’s crucial to understand how this decision can affect our application’s success. The initial step towards understanding the role of a co-applicant is to clarify who they are. 

Also Read: What are Paperless Loans? How to apply?

Definition of a Co-applicant 

A co-applicant, sometimes known as a co-borrower, is an individual who applies for a loan alongside the primary borrower. Lenders often consider the co-applicant’s financial profile when deciding whether to approve or decline a loan application. This means the co-applicant’s income, debt, and credit score are all taken into account.

How Co-applicants Affect Personal Loan Approval

We have come across this question too many times so let us just address it now – how exactly does a co-applicant affect personal loan approval? Having a co-applicant can improve our chances of approval since the lender has an additional source of repayment. This reduces the risk for the lender, which can lead to a more favourable outcome for our application. However, it’s important to note that a co-applicant with a weak financial profile can negatively affect your application.

Many a times, this kind of loan comes in handy when two married partners or siblings or friends have decided to start their own business or start-up. This way, the amount of the loan gets divided between the two and it becomes easier to get a bigger amount sanctioned by the bank. 

Impact of a Co-applicant’s Credit Score on Personal Loan Eligibility

The credit score of a co-applicant plays a significant role in determining personal loan eligibility. As with the primary borrower, a high credit score can increase our chances of approval and might even result in a lower interest rate. For example, Airtel Personal Loan requires a credit score of 700 and above for eligibility. Moreover, one just has to be 18 years and above, a citizen of India, and no collateral is required. All one needs to do is submit the documents necessary  for getting a personal loan. 

There are a few factors that determine personal loan eligibility with a co-applicant. These include both applicants’ income and employment stability, credit history, existing debts, and the relationship between the primary borrower and the co-applicant. Lenders often prefer co-applicants who are spouses or close relatives.

Pros and Cons of Having a Co-applicant for Personal Loan

Weighing the pros and cons of having a co-applicant for our personal loan is important before you make a decision. The primary advantage is the potential for a higher loan amount or better terms due to combined income and credit scores. However, the downside is that both parties are legally responsible for the debt, which can lead to complications if the primary borrower defaults.

This brings us to the legal obligations of a co-applicant in a personal loan. Both the primary borrower and the co-applicant are equally liable for the loan. If the primary borrower cannot repay the loan, the co-applicant is legally bound to repay the debt.

Co-applicant Vs Guarantor: Differences and Similarities

A common point of confusion is the difference between a co-applicant and a guarantor. While both can help secure approval for a loan, a co-applicant shares ownership of the loan, whereas a guarantor only agrees to repay the loan if the borrower defaults.

Also Read: Personal Loan Top Up – Features and Eligibility

How to Improve Personal Loan Eligibility with a Co-applicant

Finally, let’s look at how to improve personal loan eligibility with a co-applicant. Choosing a co-applicant with a stable income and excellent credit score can boost your chances of approval. It also helps if the co-applicant has a low debt-to-income ratio and a strong repayment history.

In conclusion, a co-applicant can significantly affect our personal loan eligibility. It’s a decision that should not be taken lightly, as it involves shared responsibility and liability. However, with careful planning and consideration, a co-applicant can be a beneficial tool in securing a personal loan. Remember, understanding the financial obligations and consequences before entering into such an agreement is paramount for our financial health.