According to the Reserve Bank of India, credit under the personal finance segment rose at a compounded annual growth rate (CAGR) of 8.5% during FY 2009–14.
While giving loans, banks and NBFCs consider some norms and criteria.
There may be a situation when your eligibility can’t help you to get the desired loan amount. It may be your salary, your credit history or your company’s profile which is not up to the level of getting desired amount and loan tenure. At this point, you can add a co-applicant for your loan. This type of loan is also known as joint finance.
Who is a co-applicant?
A co-applicant is a person who applies along with the borrower for loan. It will be like a supplement for your loan eligibility. For example, if you are earning Rs 50,000 per month, residing in a tier 1 city and you want an amount of Rs 8 lakh, then according to your income, you can’t get this amount. But if you add a co-applicant earning Rs 30,000 per month, then banks will consider your combined income and loan will be disbursed according to that income.
If your credit history is good enough to make you eligible for a loan, only then your co-applicant will be considered. Co-applicant can’t help if the borrower is not eligible.
Who can be a co-applicant?
Banks do not allow anyone to be a co-applicant for your loan. There are some specified relations that can be co-applicants.
- Parent and son
- Brother and brother
- Husband and wife
- In case of a company loan, the co-owners of the company can be the co-applicants of the loan.
Who cannot be a co-applicant?
A co-applicant cannot be a minor.
- Banks do not allow friends and relatives to be the co-applicant for a loan.
- Married daughter and parent
- Sisters to each other
- Sister and brother
What is the role of a co-applicant?
A co-applicant is completely liable for the repayment of the loan amount. The loan amount is approved on the combined income of the borrower and the co-applicant. If the borrower is not able to pay the EMIs or if he/she defaults, refuses or dies, the co-applicant has to repay the loan amount. Adverse consequences of being a co-applicant are also there. If the borrower defaults in any term, your credit history will also have the marks of that defaulted case. Banks will also treat you like a defaulter and you may face difficulties in future regarding financial domain.
Advantages of having a co-applicant
Having a co-applicant is like a memory card in your smartphone that will expand your phones’ capacity. The benefits of having a co-applicant are:
Easy loan approval: A co-applicant will help you in getting an easy and instant approval for your loan.
Increased loan amount: If you need a large amount of loan but your income is resisting, you can then add a co-applicant in your loan having a stable source of income. The income of the co-applicant will supplement your loan amount. So, you can get a greater amount of loan with a co-applicant.
Lower interest rates: Banks can offer you lower interest rates if the co-applicant has a strong background, a good company profile, and good credit history. You can enjoy the benefits of lower interest rates and lower instalments.
Tax benefits: Tax benefits can be grabbed by both applicant and the co-applicant. (Under Section 24 and 80 C of the Income Tax Act)
Having a co-applicant can help you in getting your desired loan amount. You can satisfy your desires even if your income is not as per banks’ criteria. Before applying for a joint finance, you must have a clear picture of all the aspects.
The author is founder and CEO, Dialabank.com. The views expressed in this article are his own
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