As the oft-quoted phrase says, “a good deed never goes unpunished.” This can certainly be true when it comes to taking out a personal loan on behalf of someone else. While there is nothing wrong with taking out a personal loan on behalf of someone else if you’re happy with your decision having considered the risks and the consequences, sadly such an act of kindness can often end up being filed under ‘Financial Horror Stories.’ Even if everything goes well from a payments perspective, you can still end up with consequences for your financial future.
Here’s a look at the top 6 horror stories when it comes to taking out a personal loan on someone else’s behalf.
1. You Pay for Your Partner’s Cosmetic Surgery, Then They Cheat on You
Cosmetic surgery is brilliant for a number of reasons. From helping to remove scars and change the effects on appearance that previous surgery for medical reasons had, to improving your smile and boosting confidence, undergoing cosmetic surgery can change your life.
What if you took out a personal loan on behalf of your partner so they could undergo life changing cosmetic surgery? What if you paid for your girlfriend to have that confidence boosting breast augmentation she’s always wanted? What if you paid for your boyfriend to help remove all his self-awareness around his smile with an incredible cosmetic dentistry procedure?
What if they took this new found confidence and cheated on you, leaving you with a personal loan to repay and no relationship to show for it. Even if the cheater arranges to pay money to repay the loan, it’s still on your credit file, and something you may need to explain to a new partner in the future, so potentially awkward in more ways than one.
2. Your Marriage Ends, They Get Half the Assets but You Get Half the Debt
When you’re happily married, or happily involved in any relationship for that matter, you usually don’t think twice about taking out a personal loan that you can both use, or having a second credit card issued on your account for your partner.
Whether the relationship ends amicably or otherwise, it might not end well from your perspective when you have to give up half your assets but are lumbered with all the debt yourself. This is especially galling if you’ve taken out a debt consolidation loan to off your partner’s credit cards and then the relationship ends. Doubly so if it ends badly and you’re unable to come to an arrangement to get help repaying the debt!
3. It Turns Out You Didn’t Really Know Your Friend After All
When your oldest friend asked if you’d borrow $30,000 on his behalf so he could pay off his debts and take a holiday before starting his new job, you might not have thought twice about it. After all, you’ve been through a lot together down the years and are as close as it is possible to be without being related. You were the best man at his wedding but were also by his side and supporting him as his marriage broke down. If you were in this situation, he would do the same for you, no doubt about it.
Sadly, your friend knows exactly how you feel and what you’d be thinking, so takes the opportunity to take advantage of your good nature. You take out the loan, but he doesn’t consolidate his debts with them, and you’re not sure if you can call his trip a holiday, as he went abroad and never came back.
Meanwhile, you’re left at home either having to pay the personal loan yourself or racking up missed payments and dealing with a default with your credit score deteriorates.
4. Family Members Take Advantage of Your Good Nature
A close family member needed to borrow some money, but was unable to do so. Given that no one in the family had any savings that they were unable to lend, you offer to take out a personal loan for the person in question, who agrees to repay you.
Unfortunately, it turns out their strong words about making sure you were repaid on time were just that, words. Their urgency when looking for a job hasn’t increased, and they tell you they’ll pay you back eventually, because you’re family and they want to see you right.
Again, the words sound nice, but you can’t use a promise to repay a personal loan out of your own money, can you?
5. Repeat Applications for Credit Ruin Your Credit Score
The person who needs the personal loan is desperate for the money. Seeing the situation they are in, you are desperate to help them and want to get the loan for them.
So, you apply for a personal loan. You’re declined. You apply for another personal loan, and you’re declined again. You do this another five or six times, and the result is the same every time. You’ve now potentially ruined your credit score beyond the reason you were declined in the first place, and might not be able to take out any type of credit in the foreseeable future.
Remember you are entitled to check your credit file free of charge, and are able to challenge and change any data on there that is incorrect.
Make sure your credit file is an accurate reflection of your financial circumstances and behaviour before applying for any type of credit.
6. Your Existing Obligations Mean Lenders Deem Further Lending Unaffordable
Even if you take out a personal loan on behalf of someone else and all the repayments go swimmingly, the fact you have this personal loan on your credit file may mean you are unable to obtain further credit until this loan is repaid in full. When lenders look at your credit file, they are also looking at your affordability circumstances. If you already have a personal loan balance of $20,000, you may not be able to borrow a further large sum yourself. Unfortunately, you won’t be able to explain to lenders that the payments for the existing loan actually come from someone else, because all they’ll be interested in is the fact that this particular loan is regarded as your obligation.
You Can Avoid These Horror Stories!
Ultimately, the only way to avoid any of these personal loan horror stories is to ensure you don’t take out a personal loan on behalf of anyone else. However, ultimately it is your decision whether you wish to do so, but if you do you should only do it with a full appreciation of the risks involved and the potential consequences you could face both in the short and the long term.
Disclaimer: This article contains general comments and recommendations only. This article has been prepared without taking account of your objectives, financial situation or needs. Before taking any action you should consider the appropriateness of the comments made in the article, having regard to your objectives, financial situation and needs. If this article relates to the acquisition, or possible acquisition, of a particular credit product you should obtain and consider the relevant disclosure documents before applying for the product.