The role of co-applicants in two-wheeler loan approval

While applying for your two-wheeler loan, your bank or NBFC might have advised you to go for a loan joint application with a co-applicant. Now, you should be wondering why you need a co-applicant in the first place. To give you a brief answer, having a co-applicant while applying for a two-wheeler loan enhances the chances of approval.

In this article, we have discussed how the credit score of co-applicants can make a difference in your loan eligibility. Also, we have explained who you should choose as a co-applicant and the benefits of having a co-applicant.

Who is a co-applicant and why do you need one?

A co-applicant is an individual who shares the responsibility of repaying the loan along with you. While lending a two-wheeler loan to you, banks and financial institutions meticulously scrutinize your financial stature. Unless you have a good flow of funds, creditors might be reluctant to offer you the financial privileges. 

So, when you apply with a co-applicant, banks consider both your income and the income of the other person to calculate the loan joint liability. Naturally, when you consider the income and credit score of both the applicants, you enjoy better odds for your two-wheeler loan approval. This explains why banks advise people with low credit score to apply for loans along with a co-applicant.

Even though you continue to be the primary owner of the two-wheeler and the borrower, banks would consider the income of the co-applicant as well. Of course, your co-applicant should have a healthy credit history.

Since the co-applicant shares the responsibility of repaying the loan, banks would approach the person in case you fail to repay. Due to this loan joint liability, both the persons remain equally responsible to pay the EMIs. Therefore, co-applicants of a two-wheeler loan share some risk along with the primary applicant.

When do you need a co-applicant to obtain two-wheeler loan?

If your credit score is in poor shape, or your income isn’t enough to make you eligible for the two-wheeler loan, you would need a co-applicant. Make sure that the person you choose as the co-applicant has a decent flow of income and a healthy credit score. When you make a loan joint application to the banks or NBFCs, chances of approval are higher.

Now, lenders have put forward some criteria on who you can choose as co-applicants.

• Some lenders allow you to choose your siblings as co-applicants, while others wouldn’t let you.
• You can choose your spouse as the co-applicant for your two-wheeler loan. Both of you would be eligible for tax benefits, if applicable.
• In most cases, banks want co-applicants to be a family member of the applicant and a working individual to ensure a good flow of funds.
• Your parent or children can also be a co-applicant when you apply for a two-wheeler loan.

 Benefits of having a co-applicant for your two-wheeler loan

1. Better two-wheeler loan eligibility

Having a co-applicant enhances your loan eligibility. Banks consider the income and repayment liability of both these individuals. With a higher income streaming in from both the individuals, you can qualify for the two-wheeler loan faster.

1. Lower debt-to-income ratio

In case you already have some ongoing loans that you are repaying, your probably have a higher DTI (debt to income ratio). It refers to the ratio between your EMIs and your monthly income. A high DTI often leads to the rejection of two-wheeler loan applications. However, with a loan joint application, the DTI may be low as the co-applicant might not have too many ongoing loans. Ideally, banks want your DTI to be less than 40%.

1. Better credit score

In case you have spoilt your credit score due to irresponsible money-handling, having a co-applicant can boost the combined score. Suppose, you have a high credit utilization report or too many loans to lower your score. With a co-applicant, the banks would consider the healthy credit record of the person and approve the joint loan.

1. Lower interest rate

Apart from faster two-wheeler loan approval, you would also benefit from a lower interest rate when you have a co-applicant. Considering the combined income and credit score, banks and NBFCs consider you to be a low-risk borrower. As a token of gratification, they reward borrowers by slashing the interest rate for the two-wheeler loan marginally. When you purchase an expensive motorcycle, a slight difference in the interest rate can translate to a significant saving.

What are the responsibilities of the co-applicant?

Co-applicants should consider their loan joint liability before assisting the primary borrower with their financial stature. If any unforeseen circumstance arises and the primary borrower fails to pay the EMIs, the co-applicant would be responsible to make the payments. Before choosing your co-applicant, make sure to check the credit score of the person along with the source of income. 

When you default on a joint loan, it affects the loan eligibility and credit score of both the applicants. So, irresponsible financial habits of the primary borrower might affect the creditworthiness of the co-applicant. 

The collectors would approach both the applicants to recover the loan. Therefore, being a co-applicant brings you sizable financial responsibility.

Things to note while applying with a co-applicant

• Lenders would require income proof, IT returns, bank statements, and other financial documents of both the applicants. Make sure that your co-applicant keeps all these documents handy to ensure faster two-wheeler loan approval.
• Not all creditors might support loan joint application to purchase two-wheelers. So, explore all the financing options from banks and NBFCs before applying for the loan.
• Applying for a two-wheeler loan with a co-applicant might involve a longer loan processing time.

Take away

Although it’s logical to have co-applicants to boost your two-wheeler loan eligibility, there are situations when you should refrain from having certain persons as your co-applicant. For instance, if the debt-to-income ratio of the individual is higher than yours or even similar, there’s no point having a co-applicant.

Being strategic with your two-wheeler loan application can help you take advantage of competitive interest rates. If you have a decent credit score and income flow, you can qualify for the loan even without a co-applicant.