Taking a joint loan has many benefits-it increases your chances of eligibility, reduces the repayment burden and allows tax benefits to both the borrowers. But what if your partner stops paying his portion of the equated monthly instalment (EMI)? If he defaults, it will reflect badly not only on his credit score but yours too. This will make it difficult for you to get a loan in the future. Here are some of the problems you could face as a co-borrower and ways you can resolve them.
Co-borrower Turning a Deaf Ear
If the co-borrower is ignoring repeated requests to repay his portion of the loan, you can pay him the amount that he has contributed till date and get the asset transferred in your name. Of course, you will have to keep the lender informed of these negotiations. As you will have to shoulder a bigger financial burden, you will need to refinance the loan.
One way is to ask the lender for more money so that you can pay your co-borrower. If the lender is unwilling to do so, you can approach another lender to give you a bigger loan. You can use this money (bridge loan) to pay the original lender.
In both the cases, you need to decide if you want to increase the tenure or the EMI. If you pay a bigger EMI, you will have to furnish proof that you can do so or put up another asset as a collateral. You could also go for the step-up option so that the EMIs increase gradually and in tandem with your salary increments.
Heading for Splitsville
If you and your spouse are co-applicants and in the middle of divorce negotiations, the best thing to do is to sell the asset. This is because no matter what the divorce decree states, your obligation to the lender supersedes it.
The bank will not be interested in the asset's ownership and will expect repayment from both parties. So, when you are splitting the finances, use the sale proceeds to repay the loan.
Ensure that the co-applicants are also co-owners as the money from the sale will only go to the person in whose name the asset has been registered. Alternatively, you could take a loan from the bank, pay your former spouse and transfer the asset in your name.
Dealing with an Eventuality
An unfortunate incident, such as job loss, accident or death, may halt the EMI repayment from your co-borrower. This might derail your asset buying plans, especially for a bigticket item like a house.
There isn't much you can do after the mishap, so a precautionary step is to opt for a home loan insurance plan. Such plans are single premium policies and are reasonably priced. Consider the HDFC Home Loan Protection Plan. If a 32-yearold takes a home loan of Rs 30 lakh for 15 years and pays a premium of about Rs 52,000, the plan ensures that if he dies, the outstanding loan is paid to the lender.
ICICI Lombard's Home-SafePlus offers an assured sum, of which the outstanding amount is paid to the bank and the remaining goes to the family. It also has a critical illness rider, where the premium is eligible for tax deduction under Section 80D.