The Role of Co-applicants in Personal Loan Approval

Imagine Ravi wants a personal loan of ₹5 lakh to renovate his house. He earns ₹40,000 a month and applies solo. 

For a ₹5 lakh personal loan over 5 years at 12% interest, Ravi’s EMI would be around ₹11,122. Most lenders prefer the EMI to be no more than 40% of your income. In Ravi’s case, this works out to ₹16,000. 

Sounds great, right? But what if his credit score is low? A co-applicant could be the solution. Did you know that 67% of Indians have taken a personal loan at some point in their lives?

Now, coming back to Ravi, adding his wife, who earns ₹30,000 a month, increases their combined eligibility. Together, they easily qualify for the ₹5 lakh personal loan.

Who Is a Co-Applicant in Personal Loans?

A co-applicant is someone who shares the responsibility of your loan. This could be a spouse, parent, or even a business partner. Lenders check both applicants’ incomes, credit scores, and repayment history.

Here’s a quick example:

• If Ravi applies alone with a credit score of 650, the lender may hesitate.
• With his wife’s score of 750 added to the application, the approval odds increase.

This simple addition can also reduce the interest rate. Lenders see less risk with two incomes backing the loan.

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Why Co-Applicants Improve Loan Approval Chances

Still wondering how a co-applicant helps? Let’s break it down.

A co-applicant not only boosts eligibility but also increases the loan amount you can secure.

How Lenders Evaluate Co-Applicants

Lenders focus on:

• Credit Score: Both applicants’ scores matter. Aim for 700+.
• Debt-to-Income Ratio: Lenders prefer your EMI to be below 40% of your combined income.
• Employment Stability: Steady jobs mean higher chances of approval.

Who Can Be a Co-Applicant?

Not everyone can qualify as a co-applicant. Typically, it’s someone close to you financially or emotionally.

• Spouse: Most common option for joint loans.
• Parents: Great for younger applicants.
• Siblings or Partners: Ideal for business loans.

Lenders may not accept friends or distant relatives as co-applicants.

Benefits Beyond Approval

Including a co-applicant isn’t just about getting a green signal.

• Reduced interest rates.
• Higher loan amounts.
• Flexible repayment terms.

Risks and Responsibilities

Before applying, consider the risks:

• Both applicants are equally responsible for repayment.
• Missed EMIs can impact both credit scores.
• Strained relationships if financial issues arise.

For instance, Ravi and his wife must be clear about who pays how much each month. Transparency avoids future disputes.

Tips for Choosing the Right Co-Applicant

• Choose someone with a high credit score.
• Ensure their income is steady and sufficient.
• Have an honest discussion about repayment responsibilities.

How to Apply for a ₹5 Lakh Personal Loan with a Co-Applicant

The process is simple:

1. Check your combined eligibility using an online calculator.
2. Gather documents for both applicants: income proofs, ID, and address proofs.
3. Fill out the joint loan application form.
4. Submit it to the lender with supporting documents.

Pro tip: Apply with a co-applicant only if their financial profile significantly improves your eligibility.

Conclusion 

The shift towards joint applications shows the importance of financial collaboration in achieving larger borrowing capacities and more favorable interest rates, making it a popular choice among couples looking to finance significant expenses like home renovations or personal projects.

A ₹5 lakh personal loan might seem easy, but a co-applicant can make approval smoother, cheaper, and faster. So, who’s your co-applicant?

FAQs

1. Can a co-applicant have a low credit score?
   Yes, but it might reduce your approval chances.
2. Is a co-signer the same as a co-applicant?
   No, a co-signer only guarantees the loan, while a co-applicant shares responsibility.
3. What if the co-applicant stops paying?
   The primary applicant must repay the entire amount.
4. Can I remove a co-applicant later?
   Only after full repayment or loan restructuring.