Read About Personal Loan Co-Applicants - Personal Loan Blog - Tata Capital

Everything About Personal Loan Co-Applicants

Feb 28, 2017

As per the Reserve Bank of India (RBI), the credit under personal finance category has increased significantly. This segment recorded a compounded annual growth rate (CAGR) of 8.5% during the fiscal years 2009 to 2014.

Financial institutions consider certain criteria and norms while sanctioning loans. In certain instances, you may find yourself in a position where you are not eligible for availing of the desired amount. Your income may be inadequate or you may have a low credit score. To overcome such situations, you may consider including a co-applicant to your loan application. These types of personal loans are also referred to as joint finance.

Meaning of co-applicant

A co-applicant is an individual who applies for a personal loan along with the primary borrower. He helps to supplement your eligibility of receiving a loan. The financial institutions consider your income as well as that of the co-applicant to sanction a higher amount of loan. However, you need to ensure your credit history is adequate to make you eligible. If you are not eligible for a loan, a co-applicant cannot help you gain eligibility.

Co-applicants allowed

Banks and other financial institutions do not allow any person to become a co-applicant when you apply for a personal loan. You may include your spouse, brothers, or parents as co-applicants. If you want to apply for a corporate loan, you may include co-owners as the co-applicants.

A minor cannot become a co-applicant on a personal loan. Furthermore, you are not allowed to include relatives or friends as co-applicants. A married daughter is also not eligible to be a co-applicant for her parents. Sister and brother, as well as two sisters, are also not eligible.

Role of a co-applicant

If you fail to repay the borrowed amount on time, the co-applicant has the entire responsibility of repayment. The sanctioned amount is based on your combined incomes. On your inability to pay the monthly installments or in the case of your sudden demise, the co-applicant must repay the outstanding amount. Before agreeing to become a co-applicant, it is important to know the risks entailed with such an application. If you default, the co-applicant's credit history is also negatively impacted. Therefore, the co-applicant may face difficulties to avail of a loan in the future.

Four benefits of including a co-applicant

  1. Your personal loan application will receive instant approval
  2. If your income is insufficient to avail of your desired loan amount, a co-applicant is advantageous to supplement it and improve your eligibility
  3. Including a co-applicant with a strong credit history may result in you enjoying a lower rate of interest on your loan
  4. You and the co-applicant enjoy tax benefits under Section 24 and Section 80C of the Income Tax Act, 1961

Having a co-applicant has several advantages. However, before you opt for joint finance, you need to understand all aspects of co-application to make the right decision.