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How can a co-borrower increase your Personal Loan eligibility?
Instant online Personal Loans could be of great help if you ever need emergency funds. However, it could sometimes be a hurdle to fit the eligibility criteria for approval, especially related to income and credit score requirements. This is where a co-borrower can help increase your loan approval chances.
Who is a co-applicant?
When applying for a Personal Loan, having a co-applicant, also known as a co-borrower, can positively impact your eligibility for the loan. Unlike co-signers, who are only responsible in cases of defaulting on payments, co-applicants share equal responsibility for loan repayment. Family members like spouses or parents can be co-applicants, potentially extending to siblings, depending on the lender's policy.
However, you need to choose wisely. Lenders evaluate the eligibility of all co-borrowers, so ensure your chosen co-applicant has a stable monthly income and a good credit score.
How can a co-borrower improve your Personal Loan eligibility?
- Added reassurance: Lenders get an additional assurance of shared responsibility in repayment. This proves especially beneficial if your credit history is limited or there have been financial defaults in the past.
- Increased income: Lenders assess your ability to repay the loan based on your income. For instance, you must have a net monthly income of over ₹15,000 if you're applying for an Axis Bank Personal Loan. If your income falls short, a co-borrower with a stable or higher income can significantly improve your combined affordability. You might also be eligible for a higher loan amount, which may help you fund major expenses.
- Improved debt-to-income ratio (DTI): DTI is the percentage of your gross monthly income that goes towards existing debt payments. A high DTI can raise red flags for lenders. Including a co-borrower's income can lower your overall DTI, presenting a more stable financial situation.
- Enhanced credit score: Your credit score impacts the Personal Loan interest rate you get. If your credit score isn't as ideal as the lender requires, a co-borrower with a strong credit history can significantly improve your application's overall creditworthiness. You can get a lower interest rate, saving you money in the long run.
Also Read: Understanding the need for a Personal Loan co-applicant
Things to consider while choosing a co-applicant
- Ensure you and your co-applicant submit the documents required for a Personal Loan. This includes proof of identity, address, income and employment for both applicants.
- The responsibility of paying the EMIs is on both of you. If your co-borrower fails to pay an EMI, you must pay it, as any default will impact both your credit scores.
Remember, open and transparent communication regarding repayment responsibilities and financial expectations is key to maintaining a healthy co-borrowing relationship.
Disclaimer: This article is for information purpose only. The views expressed in this article are personal and do not necessarily constitute the views of Axis Bank Ltd. and its employees. Axis Bank Ltd. and/or the author shall not be responsible for any direct / indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information. Please consult your financial advisor before making any financial decision
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