If you are going to apply for a loan, and then often without collateral, you have to go through a small needle eye before any loan will be approved. The banks and institutions that offer loans have different requirements for the applicant. This applies to everything from the age, income and payment history to the applicant.
Such requirements are difficult for some to meet, especially when a relatively high amount is involved. If the requirements are not met, the loan will also not be granted and that is when a co-applicant may be fine.
The benefits of a co-applicant lie in the increased collateral the bank has that the loan will be repaid. With co-applicants, naturally, the overall income will be higher and this gives the bank more assurance that monthly interest and installments are paid as agreed. This extra security also makes the interest terms a negotiator with the bank more favorable to you as the principal applicant. This in turn allows you to make the loan considerably cheaper by including a co-applicant.
Naturally, it is the main applicant who is listed as the first bank to contact if the loan obligations are not complied with. However, it is important for the co-applicant to be aware that he / she is jointly and severally liable, and that in cases where the main applicant does not pay interest and installments, the bank will be able to make claims against the co-applicant.
It is therefore very important that all parties are aware of the conditions and what kind of responsibilities both the main applicant and the co-applicant have before the papers are signed.
The disadvantages are primarily to the co-applicant as he / she does not use the loan, but is jointly and severally liable together with the main applicant. It is therefore important for the co-applicant to consider whether this is a risk one is willing to take and whether one relies 100% on the main applicant. If the applicant has payment notes, it will be worthwhile to apply alone.
In short, we see that there are both advantages and disadvantages to fellow applicants. The benefits are that it will be easier to get the loan granted, and that it can provide a basis for lower interest rates. The disadvantages are largely for the co-applicant, which means that the banks can make claims against the co-applicant if the loan terms are not met.
It is important that one trusts one another and that one goes carefully through the obligations one undertakes as a co-applicant.