Does Your Co-Applicant Affect Your Personal Loan Eligibility - Know Here!

Taking out a personal loan is often a great way to manage large expenses, from a dream vacation to an urgent financial need. However, when the amount is high or if you're facing challenges meeting eligibility criteria, adding a co-applicant might just be the solution to unlock better-borrowing terms.

But what exactly does it mean to have a co-applicant for personal loan, and how can this affect your chances of approval? Let's explore the role of a co-applicant, how they impact personal loan eligibility, and the pros and cons of adding someone to your loan application.

Who is a Co-Applicant?

A co-applicant (sometimes referred to as a co-borrower) is someone who applies for the loan with you, sharing equal responsibility for repaying the loan. That means both of you are jointly liable for the loan repayment, and any failure to meet payment obligations can affect both credit scores.

In personal loans, a co-applicant can be a family member, spouse, or business partner. While their role differs from a co-signer (who only steps in if the primary borrower defaults), a co-applicant has equal accountability right from the start.

Personal Loan Eligibility Criteria

Before understanding how a personal loan with co-applicant works, it's important to know the basic criteria lenders normally look at when processing an application:

• Location – Lenders often prioritise borrowers residing in urban areas, as they tend to have higher credit availability than those in rural or semi-urban areas.
• Income – Whether you're salaried or self-employed, lenders want to see that your income can comfortably cover loan EMIs. The minimum salary requirement can vary, but Rs 30,000 is a common benchmark. For self-employed individuals, income after-tax deductions are used to assess eligibility.
• Credit Score – Your credit score plays a critical role in determining whether you qualify for a personal loan. A high credit score signifies good creditworthiness and can lead to favourable loan terms.
• Existing Debt – Lenders will evaluate your debt-to-income ratio to ensure you're not overburdened with existing loans or debt obligations.

Also read: How to Improve CIBIL Score? - Aditya Birla Finance Limited

How Does a Co-Applicant Affect Your Personal Loan Eligibility?

Now that we have a basic understanding of the eligibility requirements let's dive into how a loan with a co-applicant can affect your eligibility.

1. Increases Combined Income

Adding a co-applicant increases the total income presented in the loan application. That is particularly beneficial if you don't meet the lender's income criteria on your own. For instance, if your salary falls short of the required limit, a personal loan co-applicant with a stable income can help raise the combined income, improving your chances of approval.

2. Boosts Creditworthiness

Even if your credit score isn't stellar, having a co-applicant with a higher credit score can positively influence the loan application. The lender considers the co-applicant's credit history, which can improve your overall creditworthiness. This becomes critical, especially if your score is slightly below the lender's threshold.

However, keep in mind that while a co-applicant's strong credit score can enhance your application, a low score could hinder it. Before adding someone as a co-applicant, make sure their credit history doesn't adversely affect your application.

3. Improves Loan Repayment Capacity

A co-applicant doesn't just boost your income but also improves your loan repayment capacity. With two people sharing the responsibility of paying the EMIs, the lender feels more assured that the loan will be repaid on time. This can result in lower EMIs and help you stay on top of repayments, potentially making your financial planning smoother.

Also Read: What is an Equated Monthly Instalment (EMI)?

4. Reduces Debt-to-Income Ratio

Having a co-applicant can lower your debt-to-income ratio, which is crucial if you already have existing debts. With a co-applicant, the combined debt-to-income ratio is usually better than applying alone, making you a safer candidate in the eyes of lenders.

5. Helps You Borrow a Larger Loan Amount

If you're looking to borrow a higher amount, a loan with a co-applicant is a smart option. Their income and credit score, coupled with yours, give you more borrowing power. Lenders might be more willing to approve larger loan amounts if there's a second person sharing the repayment responsibility.

Should You Always Add a Co-Applicant?

While the benefits of having a co-applicant are evident, there are certain scenarios where it might not be the best option.

• Smaller Loan Amount
• Poor Credit History of the Co-Applicant
• Responsibility and Trust

Key Advantages of a Co-Applicant for a Personal Loan

• Increased loan approval chances due to higher combined income and better credit profile.
• Higher loan amount eligibility for meeting large financial needs.
• Lower interest rates due to enhanced repayment capacity and creditworthiness.
• Shared repayment responsibility reduces the EMI burden and eases financial planning.
• Tax benefits on the interest component may be shared between co-applicants.

Conclusion: Is a Co-Applicant Right for You?

A personal loan with a co-applicant can significantly impact your eligibility, helping you secure better terms and a higher loan amount. However, it's essential to carefully evaluate the co-applicant's financial standing and credit score before moving forward.

If you're unsure whether a co-applicant is necessary, consider the loan amount, your credit score, and the co-applicant's ability to share the repayment burden. When done right, applying for a loan with a co-applicant can ease financial pressure and make borrowing more accessible.

By understanding the role and potential benefits of a co-applicant, you can make informed decisions and increase your chances of loan approval while keeping your finances in check.