How A Co-Borrower Can Boost Your Loan Sanction Probability?

Whether it is funding a vacation or a family wedding, people occasionally need external financial support to meet sudden expenses. A personal loan is a considerable option in these scenarios. However, the loan amount you apply for may be beyond what you’re eligible for.A co-borrower can come to rescue in such scenarios. The co-applicant is mentioned in the loan documents and shares the loan repayment responsibility with the fellow borrower.

Each lender has its own guidelines when it comes to granting permissions for co-applicants. Usually, spouses are favoured by lenders, but occasionally, siblings can also serve as co-borrowers.

There are numerous benefits of adding a co-borrower to your personal loan application;

• Increase in Income Means Better Loan Eligibility: The lenders will look at your total income when deciding on the loan eligibility. If the income is not sufficient, the co-applicant can be added to fill the gap. In such a case, both the applicants’ income is added together, and loan eligibility is considered accordingly.
• Lowers the Debt to Income Ratio: One of the primary reasons for rejection of loan application is the high DTI (Debt to Income) ratio. It is the ratio of your total EMI in a month to the total monthly income. With a co-applicant, the income of both the applicant is added, which lowers the DTI ratio.
• Helps you Avail Loan with Low Credit Score: In case your credit score is low, you can still become eligible for a loan if the co-applicant has a high credit score.
• Preferential Interest Rates: Adding a co-applicant can actually help you get better interest rates. Lenders usually decide the interest rate based on the borrower’s credit score, total income and the loan amount. In case the co-applicant has a good credit history, it might help you to negotiate the interest rates.

While applying for a personal loan along with a co-applicant comes with many benefits, there are a few important factors to consider as well.

1. Defaulting on the loan EMI re-payments might affect the credit score of the co-applicant that is not actively re-paying the loan.
2. If the principal applicant is not able to repay the loan, the responsibility of re-payment comes to the co-borrower.
3. Only a few lenders offer a joint personal loan option.
4. The loan application process can be slightly longer than regular personal loans.

With a reliable and trustworthy co-borrower whose credit ratings and income are stable, loan aspirants can apply for larger amounts with lower interest rates. It is a brilliant idea to pursue after all the conditions have been talked through.

The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.