Borrowing money seems to be a solution for many families facing financial issues, whether it's through personal loans or home loans. If you're considering co-borrowing with someone, think carefully first. If you haven't finished paying off your debts, problems may arise.

Moreover, you never know when you might need to apply for a loan in the future. Many people already know that if we are co-borrowers, we cannot apply for a loan individually. So, for those facing this issue and seeking good advice, follow along in this article.

Co-borrower

Co-Borrowing Means Shared Debt

According to banking principles, being a co-borrower means sharing the debt. Co-borrowers are responsible for repaying the loan, even though in practice, many are co-borrowers only in name, simply to increase income to meet the criteria for loan approval.

In a co-borrowing scenario, if the loan amount is 2 million and there are 2 co-borrowers, each person effectively has a debt burden of 1 million.

Therefore, if a co-borrower wishes to become the primary borrower, their shared debt will still follow them, which reduces their ability to apply for new loans and is one reason why you may face loan application rejections.

However, if you truly want to borrow, you can remove your name as a co-borrower, but whether this can be successfully done depends on the financial institution's assessment.

Co-borrower

Things to Know if You Want to Remove a Co-Borrower

It's not easy if you are a co-borrower and wish to remove your name. The bank needs to assess whether, after removing the co-borrower, the primary borrower's income or repayment ability is sufficient. Typically, the repayment amount should not exceed 40-50% of monthly income.

If you have been repaying for several years and only have a small remaining loan amount, removing the co-borrower usually poses no problem. Alternatively, if the primary borrower's income alone meets the bank's standards over time, the co-borrower can also remove their name without issues.

However, the most common problem preventing co-borrowers from removing their names arises when they have only recently started repaying, the loan amount is still significant, and the primary borrower does not meet the bank's income criteria, leading the bank to believe that a co-borrower is still necessary.

If you still insist on remove your name from the co-borrower, you can do so, but you must find a new co-borrower to replace the one being removed. As you can see, removing a co-borrower is not an easy task, so before you decide to co-sign a loan with anyone, consider and analyze your future possibilities.

Co-borrower

Steps to Remove a Co-Borrower

In co-borrowing, banks usually require co-borrowers to have their names on the collateral  as well. Therefore, when removing a co-borrower, the following steps must be taken:

- Submit a request to amend the contract with the bank.

- Process the transfer of ownership at the land office.

- There is a transfer fee of 2% of the appraised value.

- Withholding tax will also apply (principle = co-borrower sells ownership).

Co-borrower

Is Refinancing a Good Option?

Another way to remove a co-borrower is through refinancing, which involves applying for refinancing with another financial institution, essentially changing creditors. The steps are as follows:

1. Redeem the mortgage from the original bank.

2. Conduct a transaction between parties, which incurs a fee of 5% of the appraised value of the land and buildings.

3. Register a mortgage with the new bank, with a fee of 1% of the loan amount requested.

After you apply for refinancing, you may have a loan solely in your name or have another co-borrower replace the previous one. Ultimately, it depends on the financial institution's assessment of whether you are ready to be the sole borrower.

As you can see, having a co-borrower is crucial if you want to apply for a high-value loan. A co-borrower can help you get approved more easily, but you must choose someone trustworthy who can remain a co-borrower with you until the loan is fully repaid. Otherwise, you may end up having to replace a co-borrower unnecessarily, incurring additional costs.

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