Credit Building > How joint debt consolidation loans work

How joint debt consolidation loans work

Wollit Team3 minute read · Updated 1st July 2024

A joint debt consolidation loan is a kind of loan that helps two or more people combine their debts into one single loan with a single monthly payment.

This kind of loan is especially useful for couples, partners, or close family members who want to manage their debts together and improve their financial situation.

By combining their income, debts, and credit scores, joint applicants can increase their chances of being accepted for a loan, even if they each have poor credit individually.

What are the benefits of joint debt consolidation loans?

One of the main benefits of a joint debt consolidation loan is that it makes debt management easier. Instead of juggling multiple payments and due dates, joint borrowers only need to make one payment each month. This helps reduce stress and makes sure that neither party misses a payment.

Joint debt consolidation loans can also be a powerful tool for building a stronger financial future. By consolidating debts, joint borrowers can pay debts off faster and reduce their overall debt burden. This can be really helpful for couples planning to stay together long-term, as it allows them to work together to achieve financial stability.

Joint debt consolidation loans also often come with fixed interest rates and repayment schedules. This means that joint borrowers can budget and plan their finances with a bit more certainty in mind, knowing exactly how much they will need to pay each month and for how long.

Paying off debts jointly can also help improve credit scores. By making payments on time and reducing debt, joint borrowers can show responsible financial behavior, which can improve credit ratings. This can be especially important for those planning to apply for a mortgage or other major loans in the future.

How can I apply for a joint debt consolidation loan?

Here are the simple rules for getting a joint debt consolidation loan in the UK:

First of all, both of you must be over 18 and UK residents.
At least one of you should have a regular income of £10,000+ per year.
Find a lender that offers joint debt consolidation loans. Some major banks like HSBC, Halifax, Santander, and Lloyds Bank offer these sorts of loans.
Apply jointly. The lender will assess the combined creditworthiness.
If approved, both of you will sign the loan agreement together. This links your credit files, so any missed payments will affect both credit scores.
The loan will be used to pay off your existing debts, combining them into one fixed monthly payment at a single interest rate.
Be aware that if the relationship ends, you are still jointly responsible for repaying the loan. Make sure you both understand and agree to the terms before applying.

You should pay attention to the impact of a joint loan to your credit score. It’s easy to overlook, but it can affect your future loan approval chances quite a bit.

How can a joint debt consolidation loan affect my credit score?

First of all, when applying for a joint loan, both of your credit scores are taken into account.

This means that if one applicant has a poor credit score, it can affect the overall creditworthiness of the joint application. However, by combining your credit scores and income, you can also improve your chances of getting the loan.

Second, it’s also worth noting that applying for a loan can lower both your credit scores, even if temporarily. You should use eligibility checkers wherever possible and hold off from making new applications immediately if you don’t get accepted.

Third, paying off debts jointly can also help rebuild your credit history. By making payments on time and reducing debt, you can show responsible financial behavior, which improves your credit scores.

However, you should not take lightly the downside of a joint debt consolidation loan, either.

This is because when you take a joint debt consolidation loan with your partner, you create a “financial association” with them.

This financial association will stay on your credit report until you pay off the joint debt and let the credit reference agencies know that you want to remove it from your credit report by using a “Notice of Disassociation”. Until you do so, lenders will look at both your credit files when you apply for credit.

Is a joint debt consolidation loan a good tool to improve my credit score?

Maybe. A joint debt consolidation loan can help you and your partner improve your credit scores by reducing debt, avoiding missed payments, and making payments on time.

However, it’s not an ideal credit building tool:

It can come with additional interest on top of your existing debt.
Your credit scores will take a small hit when you apply for the joint debt consolidation loan. This is because a loan application requires a hard credit check, which stays on your credit report for two years and is visible to all lenders. They may take this as a sign that you’re struggling.
Your credit scores can be affected when you pay off the loan and close the account as well. You’ll be left with fewer types of credit in your credit mix and your payment history will be reduced as well, which matters for your credit score calculation.
And any joint account (whether a current account or a loan) creates a financial association between you or someone else. This means that lenders will see both your credit histories when applying for loans in the future, for as long as the association exists.

If your main concern is improving credit, a joint debt consolidation loan can be a decent, although risky tool. But you should also consider a specialised credit-building tool.

One such tool is Wollit. Wollit is an app available both on Android and iOS, and it works by reporting a fixed-fee monthly subscription as a loan repayment to all three credit reference agencies.

This gives you a chance to continue building your own credit history and improve your credit score without the fear of financial associations and without having to be linked with someone else’s credit rating.