Friends and relatives often lend money to each other. But not always a person has the amount that a good acquaintance asks for. In this case, your acquaintance may ask you to take a loan from a bank or microfinance organisation. What to do in such a situation and what problems can arise for the borrower?

Consequences of getting a loan in your name for another person

The main danger is that the applicant refuses to fulfil his financial obligations. In this case, the entire responsibility for repaying the loan falls on the official borrower. If there is no evidence, it will be necessary to fulfil all obligations.

It is the official borrower who will face any problems arising in case of default on the loan. Banks may initiate legal proceedings to recover the debt. This will have a negative impact on the borrower’s credit history. You will find it difficult to get a loan later if you need the money for your own needs.

The most common mistakes made by borrowers who take out loans for other people

Problems usually arise due to mistakes made by borrowers. What are the most common ones?

• The borrower does not draw up a document that confirms the fact that his acquaintance will return the borrowed money . This document describes all the terms of the deal, including repayment terms and the total amount of the loan. It is important to note in the contract and responsibility if the funds are not returned. If the amount is large, it is better to draw up a contract according to all requirements – at a notary.
• The borrower does not take a receipt for payment of the debt. This document must state who took the money, from whom and in what amount, under what contract and in what time period it must be returned. Other conditions, if any, are also spelled out.
• The borrower has only one document: the receipt or the contract. Both are important for security and dispute resolution purposes. The former is needed as proof of the transfer of money. The contract is used as evidence of debt obligations. It is noted after the transfer of money. It is best to sign both documents at the same time.
• The borrower deletes correspondence and messages in which a friend or family member asks for a loan. This is not the most convincing evidence and may not be accepted in court, but in some cases they pay attention to the history of messages, so it is better not to delete anything until the money is returned.
• The borrower does not wonder why his friend or relative cannot apply for a loan himself. The answer to this question is important, it can clarify the situation. There are such reasons as the lack of an official or permanent source of income, a bad credit history, and a large debt load. Taking responsibility for such a person is a big risk.

It is impossible to check the credit history of other borrowers, as this information is confidential. An application can be submitted to the relevant authority only with the written consent of the individual. If the acquaintance has nothing to hide, this will give you the necessary strength. If not, it is better to refuse the loan to avoid problems.

The main thing is to remember that when it comes to financial matters, all obligations must be in writing. Even if the loan is asked by a close person: you will have to think carefully to avoid problems. Also, you should not agree to such a deal if you yourself have little financial capacity. You should keep track of your friend’s repayments to avoid late payments and penalties.