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Personal loans require a lot of factors in play to improve eligibility and help the application’s approval without extra hassle.
Co-borrowers share the responsibilities of repaying debt.
While the process of obtaining a personal loan might often seem easier for customers in comparison to other credit options, it is still important to have all pertinent information before making an application. Being factually informed not only improves the chances of loan approval but also helps people to secure a lower interest rate. Speaking of which, while qualifying for a personal loan depends on a lot of factors including income, credit score, and current liabilities, having a co-borrower or a co-applicant also plays a significant role.
They make the process easier, especially for those who might fail the eligibility criteria due to a poor credit score or inadequate income.
Read further to learn more about the role of a co-applicant in personal loan applications.
Who Is A Co-Borrower In Personal Loans?
A co-borrower is an individual who applies for a personal loan alongside the primary borrowers and the applicants share the responsibility for repaying the debts. In a similar process, lenders also consider the co-borrower’s credit history and financial situation when evaluating the application.
Who Can Be A Co-Borrower?
When applying for a personal loan, one must take into consideration the person who will become the co-borrower as financial institutions usually don’t just allow anyone for the role. While only a person’s spouse or parents can function as co-borrowers, some institutions also allow siblings in exceptional cases.
Adding a co-borrower with the loan application can significantly improve your qualification and lower the debt-to-income ratio, enabling borrowers to qualify for a higher amount and secure more favourable interest rates. However, the co-borrowers share the repayment responsibility, any missed payments can negatively in fact impact their credit scores.
How Co-Borrowers Affect Personal Loans?
1. The first and foremost criterion that co-borrowers meet is increasing the income eligibility for a personal loan. In cases when the primary borrower’s income is not enough, co-borrowers can help it qualify as a lender considers both of their incomes.
2. With co-borrowers in an application, lenders are more confident that the repayments will be done on schedule. This also cuts down on the financial burden on the applicants.
3. A lower debt-to-income (DTI) ratio makes the chances of loan approval stronger as lenders usually look for borrowers with lesser monthly debts in comparison to their monthly income. With co-borrowers, those with existing debts can file together to enhance the overall picture.
4. Last but not least, having a co-borrower increases the chance of receiving a higher amount with better loan terms and lower interest rates.
