A joint loan: what are the pros and cons?
“If I apply for a loan online and say that I’m married, I can only apply for a joint loan with my partner. Why is this?” I often hear this question from our clients. In this article, I’ll explain the reasons and set out the pros and cons of applying for a joint loan.
When you get married, you make agreements about your property and debts. If you’re married in community of property, all your property and debts automatically belong to both of you. So you are both responsible and liable for any loans you take out together. If you’re married in community of property, we’ll always ask you to take out a joint loan.
This is different if you’re married with a prenuptial agreement. The agreement you make states which property and debts belong to each partner separately, and which are jointly owned. The same applies if you are living together with a cohabitation contract. So if you have a prenuptial agreement, we won’t always ask you to take out a joint loan.
The benefits of a joint loan
Taking out a loan together has certain benefits. If you are both earning, you can use two incomes when applying for a loan and may then be able to borrow more. Please note: if you or your partner have outstanding debts or a negative credit history with the Dutch Credit Registration Office (BKR), your loan options may be limited or your application might even be turned down.
Your risk profile and interest rate
When you apply for a loan, the bank always looks at your risk profile. This involves estimating the risk of you becoming unable to repay the loan. The higher this risk, the higher the interest rate we charge. Applying for a loan with your partner alters your risk profile as having two salaries lowers the risk of being unable to make the repayments. In this scenario, your interest rate will be lower and you will ultimately pay less over the full loan term.
Sharing the costs
If two people apply for a joint loan, they are both responsible for repaying that loan. This means that you can share the costs. The disadvantages of a joint loan Taking out a loan together also has disadvantages. If one of you is unable to make the repayments, the other person is responsible for the full amount. This is because you both are jointly and severally responsible for the full loan amount. This may become a problem if you decide to separate or divorce, or if your personal circumstances change.
The disadvantages of a joint loan
A personal loan continues even if you separate or get divorced. Should this arise, you can decide to pay off the balance of the loan, to share it, or to transfer it to one of the partners. Always let us know if your personal situation changes or if you are no longer able to repay your loan. And always make solid agreements if you take out a joint loan.