Published in July 28, 2021
If you’re wondering if you can apply for a loan for someone else, then we have a quick and easy guide to help get you started.
Is one of your friends or family members going through a time of financial hardship and you think they should be getting a loan to get through it? Well if you’ve been wondering if you can apply for a personal loan for someone else, the quick answer is no. You cannot apply for a loan in the name of someone you are not. And you definitely shouldn’t. Here is why.
Taking on debt is a very personal decision. Everyone should make this decision for themselves. It can be hard to see your friends or family members have a rough time and you just want their best. However, the best thing you can give is good advice. If you or a friend or family member finds themselves in a sticky financial situation, you should seek free financial advice before taking on debt. The national debt hotline provides free financial counselling and can advise on ways to improve the situation.
Any bank or private lender will ask you to submit sensitive documents about your financial situation. It can be classified as fraud if you submit this information for someone else, especially if that happens without their knowledge.
In theory, you can take out a personal loan and give the money to someone else to use. However, you should think twice before taking such a risk for another person. You’ll find that people who are needing a personal loan will most probably ask a close friend or family member with a good credit score. The people most likely to ask you to take a loan for them, therefore, may be close relatives, a good friend, or an immediate family member like your children. Check your credit score frequently to know where you are at.
Reasons could be:
While helping out a friend or a family member seems like a good deed, it comes with many risks involved.
Helping someone out is great, right? So why should you think twice before taking on a loan for another person? Keep in mind that regardless of the scenario, the person taking out the loan on behalf of the person in need will be the liable party, bearing all the risk.
What risks are involved in taking out a loan for someone else? Let’s take a closer look at what could happen.
As you can see, by taking on a loan for someone else, you put yourself at risk to be stuck with the costs. An unexpected change of circumstances may affect the other parties ability to pay back their loan. And not to forget, arguments about finances can have a heavy impact on your relationships and friendships.
Let’s think about the best-case scenario: You took out a loan for someone else, everything goes perfectly well and you have been making consistent payments. This loan is now on your credit report. In the meantime, you may decide that you need a personal loan for your own purposes and send in an application. Your potential lender will notice that you have an existing open loan on your record already and may question why you will need a second one.
Even though you are technically not even paying for loan No 1 yourself, it may affect your interest rate and loan amount. You may even get rejected which could negatively impact your credit score and harm your chances to apply for a loan in the near future.
That’s when taking out a personal loan for someone else can be harmful to your potential financial situation and goals.
Taking out a personal loan for someone else means you’re putting down all your details and proving to a lender that your credit is good enough to pay off the loan. At the end of the day, it’s your responsibility to ensure the payments. While you wanted to be helpful, you will be the one facing the effects on your credit report and score.
While we at Tippla will always do our best to provide you with the information you need to financially thrive, it’s important to note that we’re not debt counsellors, nor do we provide financial advice. Be sure to speak to your financial services professional before making any decisions.
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