When a relationship breaks down, the mortgage and the house tend to get all the attention. Joint personal loans are quieter, but they can be just as damaging if they're ignored. Both borrowers remain legally responsible for the full balance, regardless of who agreed to pay it in the separation, and regardless of what any private arrangement says. Lenders don't recognise separation. They recognise the loan contract.
Understanding what your options are, and moving quickly, protects both your finances and your credit history.
Why a joint personal loan is different from other joint debts
A joint personal loan is unsecured debt. There's no property attached to it that a lender can repossess if payments stop, which means lenders hold both borrowers equally responsible from start to finish. The loan might have been taken out to fund a renovation, a car purchase, a holiday, or even a wedding. The purpose doesn't matter once you separate. What matters is the contract, and both names are on it.
This is worth spelling out clearly: if your ex-partner stops making repayments, the lender can chase you for the entire outstanding amount. Your credit file will also take a hit. Joint debt sits differently to a joint mortgage because there's no asset sale to pay it out. You have to deal with it directly.
Step one: get a clear picture of the loan
Before you can do anything, you need the current figures. Log in to the lender's portal or contact them directly and confirm three things: the outstanding balance, the interest rate, and whether there are any early repayment fees. Some personal loans carry break costs that can make full repayment more expensive than continuing monthly payments. Know those numbers before you decide on a course of action.
Also check whether either of you has been making repayments inconsistently. Missed payments on a joint loan affect both borrowers. If there's already damage to the credit file, dealing with the loan sooner limits how much worse it gets. For a broader look at protecting your financial position during this period, our guide on how to protect your credit score during separation covers the key steps.
Step two: decide on the right approach
There are four realistic paths for a joint personal loan after separation. Which one works depends on the loan balance, your individual financial positions, and how cooperative the split is.
Option 1: pay it out together
If the balance is manageable and both parties have funds, paying out the loan entirely removes both names from the contract immediately. This is the cleanest outcome. Check whether the lender charges an early repayment fee first, because on some fixed-rate personal loans those fees can run to several hundred dollars. If the amount is modest, paying it still makes sense to eliminate the ongoing exposure.
Option 2: refinance into one name
One person assumes the full loan by refinancing it into their name only. The lender closes the joint loan and opens a new one in a single name. This requires the refinancing party to qualify for the loan individually, which means passing the lender's income and credit assessment on their own. It doesn't happen automatically just because both parties agree to it. The lender has to approve the new arrangement.
If you're the one taking on the loan, factor the repayments into your post-separation budget carefully. If you're the one being removed, don't assume you're off the hook until you receive written confirmation from the lender that your name has been removed and the joint loan is closed.
Option 3: one party takes over repayments informally
Sometimes neither party can afford to pay out or refinance immediately. In that case, a temporary arrangement where one person covers the repayments can keep the loan current while a longer-term solution is worked out. This carries real risk. The loan remains joint, so if the paying party stops meeting repayments for any reason, the other borrower is fully exposed. Document any private arrangement in writing and set a clear deadline to formalise it properly.
Option 4: include the loan in a formal property settlement
Joint personal loans are liabilities, and liabilities form part of the asset and liability pool in an Australian property settlement. If you and your ex-partner are going through a formal settlement process, the loan can be allocated to one party as part of that arrangement. A court order or binding financial agreement can direct who is responsible for the debt going forward. This won't change your legal position with the lender unless a refinance or payout also takes place, but it does create an enforceable obligation between the parties. Understanding how to split debts fairly when separating gives useful context on how shared liabilities are typically approached in this process.
Talking to your lender
Lenders deal with separation regularly. Most major Australian banks have hardship or financial difficulty teams that can discuss options including repayment pauses, loan restructuring, or refinancing. Contact the lender's hardship line rather than a standard customer service number. Explain the situation clearly and ask what options are available in writing.
Don't assume the lender will simply remove a name on request. They won't. The process requires a formal application, and it will involve a credit check on the remaining borrower. Some lenders may decline the refinance if the remaining borrower's income doesn't meet their criteria, in which case you'll need to explore other options.
The Australian Financial Complaints Authority handles disputes with lenders if you believe a bank is not treating you fairly during the process.
What happens if you can't reach an agreement
If your ex-partner refuses to cooperate and the loan is in default or close to it, you have a few options. You can make repayments yourself to protect your credit file and then seek to recover those funds as part of a property settlement. You can also apply to the Federal Circuit and Family Court of Australia for orders relating to the debt. Neither path is instant, but letting the loan default while you wait for resolution is the worst outcome. The credit damage from a default follows both borrowers.
If the situation is complex, get legal advice early. A family lawyer can advise on how the loan fits into the broader financial separation, and whether it should be addressed as part of a formal property settlement or handled separately as a standalone liability.
Keep records of everything
From the moment you separate, keep copies of all loan statements, lender correspondence, and any payments you make. If a dispute arises later about who was responsible for repayments during the separation period, those records matter. Screenshot online statements, forward email confirmations to a personal account, and keep a simple log of dates and amounts if you're covering repayments yourself.
A joint personal loan is a liability you can resolve. The key is not to leave it sitting untouched while the rest of the separation process moves forward. Every month it stays unaddressed is another month both names remain on the hook.