No matter your financial standing, purchasing a house can be a daunting task as it demands a significant amount. In such cases, a joint Home Loan can be a smart way to split the financial obligation and also enjoy some additional benefits, like tax deductions. However, before applying for a joint loan, you must be wary of how it might affect your CIBIL score in the long run. Read on to know all about credit scores for joint Home Loans here.
What is a Joint Home Loan?
A joint Home Loan is a housing loan taken and repaid by more than one person with equal responsibility. The financial co-applicants for this type of loan are usually family members – parents, spouses, offspring or siblings. Financial institutions and banks allow up to 6 financial co-applicants for a housing loan provided they all are co-owners of the concerned property.
When Should You Consider a Joint Home Loan?
Typically, you should apply for a joint housing loan if you have a low CIBIL score or your income does not match the loan amount. With multiple borrowers, the combined income comes into play, so you can comfortably avail of the desired loan amount. A joint Home Loan, thus, makes loan repayments easier and more convenient.
How does a Joint Home Loan Affect Your Credit Score?
A joint loan affects the credit history and CIBIL score of both borrowers. It reflects on the applicant’s credit report. Here are a few ways that your Home Loan credit score gets affected:
Default in Payments
While a joint loan supplements the borrower's income and boosts their credit limit and loan eligibility, one should know that if your partner is unable to repay the amount or defaults payment under any circumstances, it is upon you to make the entire amount by yourself. Failing to do so will certainly reflect in your credit report and negatively affect your Home Loan credit score.
Diminished CIBIL Score
If your co-applicant delays or skips payment on time, it will lower your CIBIL score as well. This can be a major concern in the future since lenders check your credit score for a joint Home Loan before deciding on an application. This means the next time you opt for a loan, the chances of you getting it approved could be lesser. While the CIBIL score ranges from 300 to 900, lenders usually demand a score of 750 and above to consider you eligible and worthy of loans and credits. Defaults in payments can get your score to stoop down significantly below 400-500, which again, can lead to the loan application being rejected.
Negative Effect on Credit History
Delayed or missed payments on your partner’s part exhibit a lack of responsibility and it reflects on your credit report. A bad credit history means trouble getting a loan or credit since it describes the inability of the borrower to keep up with previous credit repayments. Lenders might not consider borrowers who have defaulted on repayments earlier as creditworthy borrowers. This also affects your Home Loan credit score adversely.
Applying for a joint Home Loan is beneficial not only in purchasing a larger house but also in curbing the overall cost owing to tax benefits. Furthermore, shared responsibility reduces financial obligation. So, if you are planning to add a financial co-applicant to your Home Loan application, go ahead. However, make sure your co-owner understands their responsibility well.
