Sharing Finances & Borrowing for Loved Ones: UK Risks & Help
If you decide to help someone else financially, it is vital to understand the risks if things go wrong.
It’s not just your relationship that is on the line but your financial state.
You may feel you want to do all you can for the people close to you and the people you love if they are struggling. As always, we must be honest with you; on too many occasions, we have seen kindness being taken advantage of.
Understanding the Risks of Borrowing for Others
Guarantor Loans: A Lender's Strategy
This topic is so important because lenders know how powerful the links are between relationships, love and money. Some of them know how to use this to guarantee payment of a debt. Have you heard of Guarantor Loans? Here’s a brief insight into the thought process behind them.
Well, if, for example, you agree to guarantee a loan for a relative and the relative stops paying. The lender knows that if they start chasing you for payment, you will begin to chase your relative. The lenders also believe that if someone close to the borrower guarantees the loan, they may feel more obliged not to miss or stop payments.
If you do not know about guarantor loans, you must read up on them in more detail. TRDG has you covered, as always. We have an article in the purple box below that provides everything you need to know about Guarantor Loans, why we believe you should avoid them, and what a better alternative might be if you are adamant about helping someone else out.
If you are already a loan guarantor, we have an article to help you if things go wrong. It's in the purple box below.
Shared Mortgages: Joint Financial Responsibility
We’re not entirely done yet. Can you guess what is usually the most popular borrowing that people share?
It’s a mortgage. When couples get together, and their relationship develops, the subject of buying a house together tends to come up. We don’t want to be killjoys at what may be a very exciting time for you, but we must be that friend who always says, “Are you sure you know what you’re getting yourself into, and are you ready for this?”
Buying a property with your partner is a big step in your relationship. If things go right and you sail off into the sunset together, it's perfect. However, if things go wrong, you may be tied to a person financially that you can't even stand speaking to.
The mortgage lender does not care about your relationship status. They care that your payments are being made each month. If your ex-partner decides not to pay his/her share, you may need to cover their payment or risk losing your home. The article below in the purple box is an essential read so you can make an informed decision.
Think Logically: Protecting Your Finances and Relationships
Emotions can make people make decisions or take actions that may seem great at the time. However, sometimes, you need to throw in a dash of logic so you’re not just following your heart. Your brain needs to contribute to the decisions. We are not saying don’t help, it’s more how you help and your own expectations.
Reducing the risk of lending or borrowing for someone else will go a long way toward preserving your relationship with that person and keeping you away from a financial issue.
Check out our article "How to protect yourself when lending money to a friend?" That way, you won’t end up with costly regrets.
