Joint loans for debt consolidation

A debt consolidation loan is used to pay off multiple debts, combining them into one new loan with a single monthly payment.

If you and a loved one both have debts you want to clear, it’s possible you could take out a personal loan in joint names and use it to pay off your other creditors.

But there are reasons this can be risky. Let’s explore those reasons now.

If you take out a loan with another person, you might agree between you that you’ll pay back half each. But this is not the agreement you’re making with the lender. 

When you sign the paperwork, you both take responsibility for the full amount borrowed. That means if the other person doesn’t make their payments, the lender is within their rights to ask you to pay their share.

So, before taking out a joint loan, think long and hard about whether you trust the other person to stick to your agreement.

Applying for a joint loan creates a link between your credit files.

This means the other person’s credit history may affect the success of your future applications to borrow.

If they don’t manage their borrowing as well as you, this could drag down your score and make it harder to get credit.

Although making one single payment instead of several can be easier to manage, it can be more costly in the long run.

For example, you might be charged a higher interest rate or have to pay more interest overall because the loan term is longer.

If you’re considering a joint loan because you’re struggling with existing financial commitments, get debt advice first.

We’ll check if there are any options that will make it easier for you to manage your debt without borrowing more.