Sudden expenses and exigencies are a part of life. Anyone can face a fund shortage. One can’t predict how these emergencies may crop up and be prepared for them all the time. Earlier, people would fall back on family and friends or borrow money from moneylenders. The process was ambiguous and unstructured, leading to issues in the future. Structured secured loans were available in the market for big-ticket expenses like buying a home or a vehicle or for running a business. However, there was no product that handled short term needs of a lower tenure, say a discretionary purchase, a medical emergency, a dream vacation, a deposit on a rental property, an investment etc. Personal loans emerged as the saviour to fill this gap.
Personal loans are unsecured loans which means you do not need collateral to apply for them. This is the primary reason why they have become a “go-to” choice for immediate financing. Personal loans are quick and easy to process with minimum documentation requirements. Since personal loans are collateral-free, the lender uses the credit score and borrower’s income as important parameters to approve the loan. At LoanTap, the eligibility criteria for most personal loans mandates that the borrower should be an Indian citizen or resident over the age of 21 years with a net monthly income greater than Rs 30,000 however, it may vary from lender to lender.
What happens if you do not have adequate income or do not have a decent credit score? What are the options available to you to still apply for personal loan?
In such an event, you would need to apply for the loan along with a co-applicant or co-borrower.
What do we mean by co-applicant or co-borrower?
A co-applicant or co-borrower is the person who applies for the loan along with you. You would have seen this feature in home loan applications where the husband and wife take a joint loan. Some banks and NBFCs have now extended the same feature to personal loans.
A co-applicant is jointly responsible for the repayment of the loan along with the primary applicant. Credit scores and incomes of both applicants are considered together to determine the approval. In case of a default, both applicants will take a hit on their credit score and both will be liable for the default.
Can I get my friend to be a co-applicant?
No. There are restrictions on who can be considered as a co-applicant. You can include your parents, spouse or siblings in your application. The rules may vary from lender to lender. Some fintech lenders may not even have an option to include co-applicants. You will need to check this point with your lender before thinking about a personal loan.
What are the benefits of including a co-applicant?
Including a co-applicant can assist you in improving your credit score and boosting your income in the application since it will be considered jointly. This could make you eligible for a bigger personal loan that could meet your needs. It could also make you eligible for a loan which would not be possible in the case of an individual application. This could be due to a shortfall in income or an insufficient credit score.
Having a co-applicant helps you to split the burden of EMI between two people so that one individual does not have to bear the entire burden.
Are there any challenges in making a co-application for a personal loan?
On the face of it, making a co-application seems to be a great idea as it reduces your loan burden and gives you the opportunity to get a bigger loan or a loan in spite of a poor credit score or inadequate income.
However, there would be a few hurdles you may have to face in the process. Let us examine them.
- Getting a co-applicant: Lenders allow your parents, spouse, siblings, and children to become co-applicants. However, if your parents are retired or do not have a decent credit score, then there is no use including them as co-applicants.
- More applicants mean more paperwork: More applicants will automatically mean double the work. You will need to complete the details for both applicants which will mean some more time and effort.
- Arriving at a consensus regarding loan repayment: Having a co-applicant is great but a joint application means joint responsibility. You can get a co-applicant to get your loan sanctioned but what if you are not able to get them to agree to joint responsibility for the EMIs or in the event of default. Then, it will become your sole responsibility to clear the loan. The lender may not agree to such a scheme as his risk becomes higher and the interest is not fully protected.
- More time for approval: Unlike a normal personal loan that gets approved and disbursed within 24-36 hours, a co-application loan may take longer. The lender may have to spend more time processing the application as there will be two sets of documents to scrutinize. This is bound to stretch the disbursal process.
- The feature is lender specific: Not all lenders offer this co-application feature for personal loans. You may be able to request the same in case you have a good relationship with your lender. Many of the fintech lenders who operate online do not have a provision for co-applicant on their forms. In case you are thinking of co-application, you must check out whether the lender you have in mind has the provision to accommodate it.
Now, let us assume you have crossed these checkpoints successfully.
What do you need to do next?
The process is simple. You will need to fill up an online application form and fill up the details for both applicants. You will need to submit the following documents –
- PAN card for both applicants
- Aadhar Card for both applicants
- Salary slips or Income proof for the last 3 months for both applicants
- Bank Statement for the last six months for both applicants
The lender will verify the details provided in the application and scrutinize all the documents. The credit score of both applicants will be verified. Based on the results of the check, the loan will be approved and the amount disbursed. This will take longer than the usual personal loan because of the complexity involved.
You can plan the repayment according to your convenience and pick the appropriate plan. There are no prepayment penalties levied if you repay the loan in part or full after servicing the loan for six months.
LoanTap offers personal loans in the range of Rs 50,000- Rs 10,00,000 for a tenure ranging from 6 months to 5 years. Annual Interest rates start from 18%. No matter what our situation, there will be solutions available if you look around. You can visit the LoanTap website for more information or call us and we will be happy to assist you.
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