Buying a car with a co-borrower: All about Joint Loans

Are you thinking of buying a car but do not have sufficient funds to bring home the ride? Also, car financing is not an option due to your low credit score and inability to take on the added financial responsibility. Now, what can you do to get that dream car to your home, is there a way out? Of course, there is. Like every problem has a solution, you just need to look for it; every financial-related issue with a lock has a key waiting to be discovered.

There is a solution for this particular car financing issue wherein the applicant cannot secure a loan due to a low credit score and /or inability to meet loan-related financial obligations. Yes, and it’s called Joint Loan.

Have you never heard of it or are you completely alien to the concept? Worry not—we are here to help and guide you through the entire process. So, buckle up, put aside all those distractions, and learn all there is to about taking a loan with a co-borrower, aka a joint loan.

Also Read: Should you finance a car? Weighing the pros and cons

Understanding joint loans in the Philippines

What is a joint loan? It is a financial instrument that allows two individuals to be co-borrowers. They can borrow money together, which results in better loan terms and high creditworthiness. There are several types of joint loans available in the Philippines like personal loans, home loans, auto loans, and business loans.

Here you join forces with someone close to you to achieve your financial goal, which otherwise appeared far-fetched. It’s like a team marathon where you run alongside your partner, both committed to crossing the finish line together. In terms of loan terms and obligations, it not only gets spread between the two but also enhances the borrowing capabilities, thanks to the combined financial force.

As for joint auto loans, it is taken out by two individuals to ease the financial burden of owning their dream car. It makes the vehicle ownership experience more attainable.

Joint loan - Eligibility criteria

Getting a joint car loan is like entering into a pact, one with specific rules and regulations to follow. For instance, the eligibility criteria are slightly enhanced compared to conventional car loans. Let us check out -

• General requirements
  - Being of the legal age (at least 21 but not more than 65 years of age when the loan matures with a joint monthly income of at least PHP 30,000, in some cases PHP 40,000)
  - Filipino citizens living in the Philippines and abroad, including OFWs
  - Foreign residents in the Philippines with a qualified Filipino co-borrower
• Credit report
  Credit scores matter a lot in a loan application, they are used by the bank to assess the borrower’s ability to repay the loan. A high credit score will get your loan approved at a lower interest rate and vice versa.
• Employment & income
  Both applicants are required to have a steady job with regular income, both of which showcase the borrower’s ability to repay the loan. Depending on the lender, there’s also a certain minimum income level requirement.
• Co-borrower relationship
  Any individual can indeed apply for a joint loan, however, some relationships influence your application positively. For example, long-term partners, and spouses are viewed as more stable relationships by the lenders.

Joint loan - Documents required

A typical car loan in the Philippines requires an applicant to submit the following documents -

• Valid government-issued IDs; it can be your passport, SSS ID/UMID, driver’s license, OFW ID, Alien Certificate of Registration, etc.)
• Proof of remittance, certificate of employment for OFWs, payslips
• Certificate of employment, income tax return, payslip
• Business registration certificate, bank statements, business permit, ITS, and audited financial statements for self-employed individuals

In the case of a Joint Loan, the documentation requirement remains almost the same. However, instead of one, there are two borrowers, therefore two individual sets of paperwork are to be submitted.

Joint Loan Documentation Requirement
Identity proof	Government-issued IDs
Income proof	Payslips, bank statement, tax return
Additional paperwork	Proof of residency, business registration documents for entrepreneurs, marriage certificates for spouses

Advantages & disadvantages of joint loan

Like every financial tool out there, the joint loan is not all things good. It has its set flip side, which is as important for a car loan application to know as the good side. The table below shows the pros and cons of a joint loan -

Joint Loan
Pros	Cons
Larger loan amount - One of the key advantages of a joint loan is access to a higher loan amount, thanks to more income from two applicants. This will enable you to get a better car than you originally thought.	Strain relationship - In the case of a joint loan, if one borrower struggles to make his/her share of the payment, the other party must cover for both. Thus putting the burden on a single person, which could affect their relationship poorly.
Better rate of interest - Two applicants mean more financial stability and therefore reduced risk for the lender. Thus leading to better loan terms and interest rates.	Negative impact on credit score - When a monthly payment is missed, it negatively shows on both the applicant's credit report. This will poorly show on their overall credit report and create difficulties in acquiring future loans.
Smooth financial journey - Here the loan repayment responsibility is shared by two individuals, making handling loan-related financial obligations easy.	Legal implications - When borrowers fail to meet repayment obligations, i.e., they default on the loan, lenders can take legal action against them, irrespective of the borrower at fault.
Improved credit score - Timely repayment of car loans will improve the credit score of both applicants.	Misunderstanding & conflicts - Joint loan partnership thrives on open communication and trust. Regular check-in on financial responsibility is a must, else there would be considerable issues.

Joint loan - Step-by-step process

Step 1. The first step while getting any loan, a car loan, in this case, is exploring potential options. It is important to check out as many lenders in the market as possible, this will help you get a better understanding of the entire loan process, and know the unique advantages and disadvantages of each lender. Depending on this information, pick a lending partner that best suits your needs.

Step 2. Next, do a thorough comparison. It’s time to look beyond the basics and further delve into the detailed loan terms. For instance, it is important to consider the Annual Percentage Rate, which will help you gain a better understanding of the cost of the loan. Here are the different parameters on which an applicant should compare loan offers -

Interest Rates	One of the most important factors to consider when getting a loan is the interest rate. It is important to note here that while a low interest rate may lure you, it translates into a high overall loan cost.
Fees and Penalties	It is important to take note of all fees and penalties mentioned in the loan agreement. For instance, late payment penalties, loan origination fees, early loan payment penalties, etc.
Customer Service	Choose a loan provider with a good overall reputation. Also, make sure they offer a smooth and quick claim process and good customer service.
Repayment Flexibility	Go with a lender that offers a flexible repayment facility. It will come in handy when your financial situation changes.

Step 3. Time to apply for a joint loan with your co-applicant. This might be done online or offline, but always together with the other borrower. Just make sure all the paperwork is in order and the information provided is accurate.

Also Read: Prepayment of car loans in the Philippines: Meaning, penalties, benefits, & more

Joint Loan - Tips to successfully crack the application

• Full disclosure - When applying for a loan, make sure to mention all your income sources and debts, as a well-detailed and comprehensive financial statement can work in your favour.
• Double-check the details - After filling out your loan application, it is essential to cross-check all the details, not just once but twice and even thrice. Doing so will help you save time and effort later.
• Be honest - The saying goes ‘honesty is the best policy’ and the same applies to a joint loan application. Make sure to be accurate and truthful about the details you provide.

Do the above-mentioned things, and the chances of your loan application being approved increase substantially. Let us now learn about the factors that financial institutions or banks look for in a joint loan application/applicant -

Applicant’s Financial Health	Banks thoroughly look into an applicant’s income, debt-to-income ratio, employment stability, and credit score.
Loan Purpose	Banks make sure to evaluate how your big purchase (car in this case) aligns with your financial goal; whether it will put a strain on it or not.
Unique Criteria	Each bank has its unique set of criteria when it comes to loan approval. Try and find them, and then tailor your application accordingly.
Relationship Stability	Sometimes the relationship between the co-applicants is viewed as an indicator of the ease of loan repayment, it acts as a loan default parameter.

Bottom line

Co-financing is a smart option for those who want to get a car but lack financial stability. This option offers much-needed financial backing and support. If you wanna apply for a joint car loan, there are a few things to consider that will help increase chances of approval. The list includes - understanding the process, choosing the right lender, getting paperwork ready, and maintaining a good credit score.

However, it is advisable to consider the potential risks and responsibilities of being a co-borrower. Remember to communicate openly and manage finances well.

Also Read: Car loans 101: Understanding your car loan contract