What Is a Joint Car Loan?
A joint car loan involves two or more people applying for and sharing responsibility for vehicle finance. Both parties are equally liable for the debt, meaning if one person cannot or will not pay, the other must cover the full amount. This arrangement differs from having a guarantor, where the guarantor only becomes liable if the primary borrower defaults.
Joint loans are commonly taken by couples, family members, or business partners purchasing a vehicle together. The loan appears on both parties' credit files, and both incomes are considered when assessing borrowing capacity.
The vehicle registration and ownership arrangements are separate from the loan. You can register the car in one name, both names, or even a third party's name regardless of who is on the loan. However, the loan contract determines who owes the debt.
Benefits of Applying Together
Joint applications offer several advantages that can make securing finance easier or more affordable.
Combined Income: Lenders assess your ability to repay based on income relative to expenses and existing debts. Two incomes generally support a larger loan than one, potentially allowing you to borrow more or choose a shorter loan term with higher repayments.
Shared Credit Strength: If one applicant has excellent credit and the other has a limited credit history, the stronger credit profile can help secure approval and a better interest rate. The joint application presents the combined financial picture.
Shared Responsibility: For couples or family members, sharing the financial responsibility formally acknowledges that both parties benefit from and contribute to the vehicle. This can simplify budgeting and create clearer expectations.
Use our car finance calculator to understand what repayments would look like for different loan amounts, helping you determine how much to borrow based on your combined capacity.
Understanding Joint and Several Liability
The legal concept of joint and several liability is fundamental to joint car loans. Understanding it prevents unpleasant surprises if circumstances change.
Joint and several liability means each borrower is individually responsible for the entire debt, not just half. If your co-borrower stops paying, moves overseas, or becomes bankrupt, you owe 100 percent of the remaining balance. The lender does not need to pursue your co-borrower first; they can demand full payment from you immediately.
This liability continues until the loan is fully repaid, regardless of what happens between the borrowers. Relationship breakdowns, disputes about who uses the car, or disagreements about who should pay do not affect your obligation to the lender.
If one borrower pays more than their share due to the other's failure to contribute, they may have a legal claim against the other person. However, pursuing this is separate from the loan obligation and does not reduce what you owe the lender.
Co-Borrowers Versus Guarantors
While often confused, co-borrowers and guarantors have different roles and responsibilities. Choosing the right arrangement depends on your circumstances.
Co-Borrowers: Both parties apply for the loan together and are equally responsible from day one. Both incomes are assessed, both sign the loan contract, and both credit files show the debt. Each person has equal rights and obligations throughout the loan.
Guarantors: One person applies for the loan as the primary borrower, and another provides a guarantee. The guarantor promises to pay if the borrower defaults but is not responsible for regular repayments. Guarantor arrangements are common when a younger person with limited credit history has a parent guarantee their loan.
Guarantor liability can sometimes be limited to a specific amount or released once certain conditions are met, such as the loan balance falling below a threshold. Co-borrower liability remains full and equal until the loan is completely repaid.
Some lenders offer guarantor releases, where the guarantee can be removed once the primary borrower demonstrates repayment capacity. This option is rarely available for removing a co-borrower from a joint loan.
What Happens When Relationships Change
Relationship breakdowns create complications for joint car loans that require careful handling to avoid financial harm.
The loan contract is separate from your relationship. Separating, divorcing, or dissolving a business partnership does not change who owes the debt. Even if a family court orders one party to assume the car and its loan, you remain liable to the lender unless the loan is formally refinanced.
Refinancing: The cleanest solution is for one party to refinance the loan into their sole name. This requires that person to qualify for the loan individually and may involve breaking the existing contract with associated fees.
Selling the Vehicle: If neither party can refinance alone, selling the car and using the proceeds to clear the loan removes the shared obligation. If the car is worth less than the loan balance, both parties must contribute to cover the shortfall.
Continuing the Joint Loan: Some former couples agree to continue the joint loan with one person making payments and using the vehicle. While this can work, it leaves both parties exposed. Formal agreements about who pays and what happens if payments stop can provide some protection.
Important Considerations Before Applying Jointly
Before entering a joint car loan, consider these factors carefully to ensure the arrangement suits your situation.
Trust and Stability: A joint loan is a significant financial commitment. Only apply with someone you trust completely and whose financial responsibility matches yours. The relationship should be stable enough to expect it will last the loan term.
Both Credit Files Affected: The loan appears on both credit reports, affecting both parties' future borrowing capacity. If you plan to apply for a home loan or other finance later, this existing debt will be considered in your assessment.
Exit Strategy: Discuss in advance what happens if circumstances change. Who would take over the loan? How would the car's value or equity be divided? Having these conversations before problems arise makes resolution easier.
Written Agreements: While not affecting lender obligations, a written agreement between co-borrowers about contributions, usage, and separation procedures provides clarity and evidence if disputes arise.
Use our free car finance calculator to model different loan scenarios together. Understanding exact repayment amounts and total costs helps both parties make informed decisions about what you can jointly afford and how you will share the financial responsibility.
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Car Finance Calculator Team
Our team of finance experts is dedicated to helping Australians make informed decisions about car loans. We provide accurate, up-to-date information to guide you through your vehicle financing journey.