Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail
Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail

Joint Credit

What it is:

Joint credit is credit extended by a lender to two or more parties. Loans secured from joint credit are the responsibility of all parties.

How it works (Example):

Two or more parties may apply for joint credit with a lender. The lender grants credit to all the applicants on the basis of their combined credit ratings, incomes and outstanding assets. Once the lender approves joint credit, all parties are responsible for repaying interest and principal on loans withdrawn using this credit.

To illustrate, suppose a bank approves Bob and Jane for joint credit up to $20,000. If Bob and Jane borrow money -- separately or together -- using the $20,000 available to them, both are liable for repaying the principal and interest on the outstanding debt.

Why it Matters:

Joint credit is frequently used by married couples. However, it may also be granted to two unrelated individuals. Joint credit allows for larger credit extensions than most individuals would be able to secure otherwise. Given the joint liability involved, joint credit applicants must be certain that they trust their co-applicant(s).