What Is a Joint Loan Account?
Whether it is a matter of purchasing a dream home or starting a business, loans are known to be helpful financial assets. The borrowers can borrow money from the financiers and pay it back to them with interest. Read on to find out details of a joint loan account.
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Imagine a scenario where you borrowed a loan to start a business in partnership with your friend. However, you are the only one who is liable to repay the loan amount. Sounds like a financial burden for you? Here’s when a joint loan account comes to the rescue. Let’s find out the meaning, benefits, and more details of a joint loan account.
Meaning of a Joint Loan Account
A joint loan account is a credit account in which you can take out a loan with another person. In this type of joint account, both parties are responsible for applying, using, and repaying the loan collectively. You can apply for a joint loan account in different cases, such as business, home, or even a personal loan. The workings of a joint loan account are the same as those of a regular account. However, the only difference is that in a joint loan account, two parties share ownership and responsibility for the debt.
Benefits of a Joint Loan Account
Here are some of the benefits of opening a joint loan account.
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Higher Loan Amount
The financial institution may consider numerous factors while going through your loan application. However, the most important one is your creditworthiness. It is determined on the basis of your credit score. Therefore, based on this, the lender will decide the maximum amount of loan for which you are eligible. But if you want a larger loan amount, you can apply for a joint loan. In this case, the financial institution will study the creditworthiness of both parties and offer a loan amount.
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Easily Repayable
In a joint loan, both parties are responsible for the repayment of the principal amount with interest to the financial institution. Therefore, the burden of paying the loan is less on an individual. For instance, if you and your friend apply for a Rs 30 lakh personal joint loan. The financial institution, after determining your credit score, approves 20 lakhs and 10 lakhs based on your friend's credit score. Therefore, if the EMI is Rs. 30,000 per month, then you will be liable to pay Rs. 20,000 and your friend will pay Rs. 10,000.
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Tax Benefits
In a joint loan account, both parties are eligible for tax benefits. Furthermore, an additional tax exemption is given if the co-applicant is your spouse. For instance, if both you and your spouse apply for a joint home loan. Therefore, as per the 1961 Income Tax Act, both you and your spouse can claim a tax deduction of up to Rs. 2,00,000 for interest paid on the home loan.
Factors To Keep In Mind When Choosing a Co-applicant for a Joint Loan Account
Listed below are some of the points that you should keep in mind when purchasing a joint loan account.
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Trustworthy Co-applicant
Make sure that you choose a co-applicant who is reliable and trustworthy. This ensures that another party will pay their share of the loan EMI. Moreover, it is important to know about the spending habits, income, and future goals of the co-applicant.
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Credit Score
The credit score is an important factor to be considered by financial institutions while providing loans. Therefore, make sure that the co-partner you are choosing has a good credit score. This will help you in applying for a greater loan amount.
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Emergency Fund
Though income and job stability are two of the most important factors, it is also crucial to check the additional assets that your co-applicant has. These assets prove to be useful during emergency situations.
Wrap Up
In conclusion, two parties are responsible for sharing the benefits and repayment of the loan in a joint loan account. With this type of account, you can apply for a higher loan amount and claim tax benefits for both parties.
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