If you decide you want to help someone else out financially, it is so important for you to understand the risks if things go wrong.
It’s not just your relationship that is on the line but your own 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. We must be honest with you as always; on too many occasions we have seen kindness being taken advantage of.
Guaranteeing a loan
The reason this topic is so important is because lenders are very aware of just 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 start chasing your relative. The lenders also believe that if someone close to the borrower is guaranteeing the loan, they may feel more obliged not to miss or stop payments.
If you do not know about guarantor loans, it’s important you read up on them in more detail. TRDG has you covered as always. We have an article in the purple box below that provides you with everything you need to know about Guarantor Loans, why we believe you should avoid it and what a better alternative may be if you are adamant you want to help someone else out.
If you are already a guarantor of a loan, we have an article coming soon that will help you if things go wrong.
We’re not quite 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 really 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, 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 has no care for your relationship status. They care that each month your payments are being made. If your ex-partner decides to not 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 important read for you so you can make an informed decision.
Emotions can make people make decisions or take actions that may seem great at the time, in the moment. However, there are times when 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 to preserving your relationship with the person whilst also keeping you away from a financial issue.
Check out our article 3 things to avoid when borrowing & lending money, that way you don’t end up with costly regrets.