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by Christy Bieber | Updated July 21, 2021 - First published on July 1, 2019
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Here are some things you should consider before you take out a loan with your significant other.
When you become romantically involved with someone, there often comes a point where you become financially involved, too. You may decide you want to purchase a home together. Or you may simply decide you want to go in together on big purchases such as furniture for your shared apartment, a car you can share, or a wedding.
When you decide to join together to accomplish things, there may come a time when taking a joint loan could make sense. You could be co-borrowers on a car loan, for example, or get a joint mortgage or personal loan where you’re both the borrowers.
Taking a joint loan is a big deal because both co-borrowers are legally liable for paying back the entire amount. This means if your partner doesn’t live up to his or her end of the bargain or if you split up and your partner refuses to pay, you could be on the hook for the whole loan amount. And your credit could be damaged by your partner’s irresponsible spending behavior.
You don’t want to risk your financial future if you aren’t really ready to commit to a joint loan with your partner, so before you sign up to become a co-borrower, make sure you ask yourself a few key questions first.
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The rate you’ll get on a joint loan is going to depend on both of your credit scores. If your partner has poor credit, you may not be able to get approved for a loan at all or you may not be able to get a loan at a reasonable rate. You need to be willing to share your scores and your credit history so you can see if borrowing is a possibility that makes sense.
Knowing your partner’s credit score also gives you insight into what kind of borrower they are. If your paramour has a perfect credit score, you likely don’t need to worry very much that they’ll default on the loan -- after all, they won’t want to blemish that perfect score. But if your partner’s credit history is marred by bankruptcies, maxed out credit cards, court judgements, and late payments, you’re taking a huge risk by borrowing with someone who has proven to have problems with credit in the past.
Having a joint bank account isn’t a prerequisite to getting a loan together, but sharing other aspects of your financial life is helpful. When you have joint accounts, it can be easier for both of you to deposit your funds into the account to make loan payments. And you’ll also have a pretty clear idea of what your partner earns and spends if you have combined other financial accounts.
If you don’t have joint accounts, talk with your partner before you get a loan together about how you plan to pay for it. Will one of you pay the full bill and the other write a check for half? It’s also a good idea to know how much money your partner has in the bank. If your partner has no savings, then they might have a hard time making loan payments if there’s an interruption in income.
Before going into debt with someone, you want to make sure that your partner is responsible about borrowing -- and spending.
Someone who spends every last dollar and who routinely takes on lots of debt is going to be a pretty big credit risk, while someone who is careful with spending is likely to take borrowing much more seriously.
If your partner seems to have no control over where his or her money goes, then you can’t be confident they’ll cut back spending enough to make loan payments -- so you may want to think twice about borrowing with them.
When you take out a loan together, you need to be able to talk about who will pay it, how it will get paid, what happens if one of you can’t make a payment, and how you’ll make sure the loan is paid back on time. In other words, you need to have regular money conversations, at least about the loan.
If you’re not really comfortable sharing details about your money, or if your partner won’t open up to you, you can’t have the conversations you need to make sure the loan will be paid on time and in full. You should work on this aspect of your relationship and practice being open about your finances before you borrow money together.
No one likes to think about breaking up -- but it happens sometimes. If you’re married and you divorce, there’s a formal process for deciding what happens to shared assets and debts. But if you aren’t married, it can become a lot harder to determine who is responsible for paying off the loan you’ve taken out together. And if you took out a loan to buy a shared asset -- such as a couch or a car or a house -- there could be fights about what happens to your joint property.
You need to make sure you discuss what will happen both to whatever you buy with the loan proceeds and what will happen to the debt you’ve taken on together. As you have this conversation, remember that creditors will still hold you both responsible if you’re co-borrowers -- even if you both agree your partner should be the one paying after a split. So if your partner promises they’ll take over loan payments but then defaults on the loan, the creditor could come after you.
One possible option you should consider is that one partner will agree to keep the asset and to refinance the loan into his or her own name if a breakup happens. Depending on the value of the item and the specifics of your situation, the partner who keeps the asset may also need to buy out the interest of the other partner by paying back some of the payments that have already been made.
Whatever you decide, make sure you have a serious conversation about the outcome of a breakup before you take out a loan -- and consider making a written agreement so there’s no confusion over responsibility if the day comes that you decide to split.
Taking out a joint loan is a big deal -- especially if you aren’t married and decisions about the loan won’t be part of a formal divorce settlement. Before you agree to share debt, make sure you’re comfortable with how your partner spends money, have exchanged credit scores, are able to talk about money together, and know what will happen if you break up.
If you’ve been together for a while and you are confident that your partner will be responsible about paying back what you owe, then you can say yes to a joint loan when doing so helps accomplish your financial goals. Just make sure you’re both on the same page about payback so the money you borrow doesn’t lead to big disagreements in the future.
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