Over time, most couples will take out some form of joint borrowing. It might be the mortgage on the house you’ve been saving for together or a loan for that new car.
Teaming up and borrowing together can mean you’re able to get a bigger loan or a higher credit limit. It can also increase your chances of obtaining credit, if you’ve got a couple of blemishes on your record, but it can also have some serious consequences.
When borrowing from the banks or other lenders as a couple, you owe the money as a couple. That means that if your partner is unable to pay up, you would be liable for the full amount.
With research by the Debt Advisory Centre suggesting that one in five people are unaware of the implications of joint borrowing, it’s important that you do your homework before signing on the dotted line.
Types of joint credit
Joint credit agreements are commonplace when in a relationship, from the overdraft on the joint bank account to the mortgage on the house.
Unsecured loans, such as personal loans; secured loans, such as mortgages, and overdrafts are all types of debt that can be taken out jointly.
Many people think that credit cards can be out jointly, but there is always a main cardholder. This means they are responsible for the debt, even if the other person is a secondary cardholder.
Ian Williams, of the Debt Advisory Centre, said: “It is a confusing area – for example, joint credit cards are usually based on a single credit agreement with the-first named cardholder responsible for paying the whole balance if things go wrong”.
It often seems to make more sense to have both names on the agreement. However, joint borrowing is about more than simply showing your commitment to each other, it could have a big impact on your finances.
Joint and several liability
When entering into a joint credit agreement for shared borrowing, both parties are usually ‘joint and severally liable’. This means that if one is unable to pay their share, the other has to foot the bill.
However, it seems that this important fact has been overlooked by many, with just 18% aware of the clause. It was also found that one in ten thought that each partner was liable for half the borrowing and 2% thought it was related to their income.
Joint and several liability means that even if the other person spent all the money without telling you, you could still end up having to pay for the full amount.
It’s also important to remember that even if the relationship has broken down or your partner has passed away, the joint credit agreement still stands.
You will be liable for the entire debt even if you weren’t the breadwinner.
If you and your partner get a joint bank account, but then split up, there is a risk that the other party could still run up huge debts, which you could be liable for.
Mr Williams continued: “It’s easy to see how joint borrowing can become a serious problem when one partner can’t afford to repay. But in many cases, relationship breakdowns can cause the problem when one partner refuses to pay. In fact, debt problems caused by separation affect one in ten people we help.”
It’s also worth remembering that once you have entered into a joint agreement with someone, lenders will be able to see their credit history. So, even when you’re applying for credit alone, they will take the other person’s file into account – not good news if they have a poor credit score.
What to do if you need help
In the event that you have been burned by a joint credit agreement and can’t afford to pay the bill on your own, there is help available. As long as you inform the lender of your situation, they are often willing to set up an affordable repayment plan.
Mr Williams advised anyone on the wrong side of joint borrowing to take advantage of the help available:
“If you are struggling to keep up with your debt repayments it makes sense to seek expert debt help sooner rather than later.”