Banks see a low score and often get nervous, which can mean knocked-back applications or loan terms that aren’t so great. But here’s a thought: what if you didn’t have to do it alone? Co-borrowing is a strategy where you team up with someone else to apply, and it might just be the leg-up you need. Borrowers exploring this option often do so as part of a broader approach to managing a home loan application with bad credit.
Sure, it can make getting a loan easier, but it’s not a simple fix. Co-borrowing is a big commitment with risks that you absolutely need to get your head around. Let’s break down how it works, the good bits, the not-so-good bits, and what you should really think about before diving in.
So, What is Co-Borrowing?
In a nutshell, co-borrowing means you and at least one other person apply for the same loan together. You’re both on the hook for every single dollar from day one. This is different from having a guarantor, who only steps in if you can’t pay. As co-borrowers, you’re both equally responsible, all the time. Many home loan applicants consider co-borrowing when one partner has a stronger credit history, especially when traditional lending options are limited and alternatives like non-bank lenders are also being considered.
You’ll likely both have your names on the property title. You can split the ownership based on who puts in more money, or you can agree on a 50/50 split from the start. People often look at this option when one person’s credit score is a bit low. Teaming up with someone who has a stronger financial track record can make lenders look twice at your application, particularly when comparing bad credit loans with standard bank lending.
The Upsides: Why You Might Consider It
1. A Better Shot at Getting a “Yes”
Two applicants are often better than one. By pooling your credit profiles, you can balance out a weaker score with a stronger one. The lender sees the whole picture, and that can be enough to get your application over the line.
2. You’re Not Carrying the Load Alone
The mental and financial weight of a massive mortgage is heavy. Sharing that burden with someone else can make it much more manageable. It can free up cash in your monthly budget and reduce the stress of being solely responsible for such a big debt.
3. You Might Be Able to Borrow More
Two incomes are better than one, right? Lenders certainly think so. By combining your earnings, you significantly increase your borrowing power. This could mean you can aim for a nicer home or have a better chance in a competitive suburb.
4. Possibly Snag a Better Deal
A co-borrower with great credit score and a solid income might just help you unlock a lower interest rate. While it’s not guaranteed, a stronger combined application can sometimes lead to nicer loan terms, saving you a bundle over the life of the loan.
The Downsides: What You Have to Watch Out For
1. You’re Both Liable for the Whole Thing
This is the big one. If your co-borrower loses their job or just decides to stop paying, you are 100% responsible for the entire mortgage. The bank won’t just ask for half from you; they’ll come for the full amount. That’s a huge financial risk to take on.
2. Your Credit Scores Are Now Linked
Your financial futures become tied together. If one of you missed a repayment, it affects both of your credit files. That mistake could haunt both of you for years, making it harder to get car loans, credit cards, or even rent a place.
Playing it Smart: How to Protect Yourselves
Talk It Out, Honestly
Have awkward money conversations upfront. Discuss your incomes, your debts, your spending habits, and your long-term goals. How will you handle it if someone can’t make a payment? Clear communication is your best defence against future blow-ups.
Get It in Writing
Even though the bank sees you as one, you need a private legal agreement between you. This should spell out who pays what, what happens if someone wants out, and how you’ll split the proceeds if you sell. It might feel unromantic, but it’s essential.
Is Co-Borrowing Actually for You?
Ask yourself these questions:
- How solid is your potential co-borrower’s financial situation?
- How strong is your relationship? Can you trust this person with your financial future?
- Do your future life plans align?
It’s a good idea to consult a Home Loans mortgage broker who can assess whether co-borrowing suits your situation.