Co-applicant in a loan? Here are the rules
What's the story
In India, co-applicants are often a must for loans, especially for those with limited credit history or income. Knowing the rules of co-applicancy is important for a smooth loan application process. Here are five important rules that every co-applicant must know, to help you make informed decisions and avoid any surprises while applying for a loan.
Tip 1
Shared responsibility for repayment
When you apply for a loan as co-applicants, both are equally responsible for repaying the loan. This means that if one fails to pay their part, the other will have to bear the brunt of it. It is important to be sure that both parties are financially capable of repaying the loan before signing any agreement.
Tip 2
Impact on credit score
A co-applicant's credit score can be affected by the other party's repayment behavior. If one party defaults or misses payments, it can negatively impact both individuals' credit scores. This may affect future borrowing opportunities and interest rates. It's crucial for both co-applicants to maintain good financial habits.
Tip 3
Income consideration in loan approval
Lenders consider the combined income of co-applicants while assessing loan eligibility and amount. This often helps in getting higher loan amounts than what an individual applicant could get alone. However, both parties must ensure that their incomes are accurately represented in the application process.
Tip 4
Joint ownership implications
Being a co-applicant often means you also become a joint owner of the asset bought with the loan, say a house or a car. This comes with legal obligations and rights related to that asset. Both parties should understand these implications before proceeding with any loan agreement.
Tip 5
Potential legal consequences
If either party defaults on repayment, it can lead to legal action from lenders against both co-applicants. This may include asset seizure or other legal measures as per the terms of the loan agreement. It's important for both parties to understand these potential consequences before agreeing to be co-applicants on any loan.