What are the risks?

If you miss a repayment or refuse to repay the loan, your credit record will get damaged, rather than the person's record you are borrowing on behalf of.

This is because you are legally responsible for repaying the debt even if you are borrowing on behalf of someone else.

To avoid this, arrange for them send you enough money to cover the loan repayment each month, otherwise you will have to pay it yourself.

What are your options?

If you're prepared for the risks, you could consider:

  • A personal loan: This is an unsecured loan you can apply for in your name only. You can use the money for any reason, except for some standard restrictions such as using the money for investments or buying property.

You could also consider applying for a secured loan, which uses an asset as collateral to cover the debt in case you cannot repay it, e.g. your house or car.

  • A guarantor loan: This is a loan that helps people with poor or no credit borrow for themselves. You act as a guarantor, meaning you are linked to the loan and will be responsible for repaying the loan if they cannot.

As a guarantor loan is designed for people with little or poor credit history, they often charge more interest than personal loans.

What are the alternatives?

If you have savings you are prepared to lend to someone else, this could help to avoid paying interest charges that get added to loans.

However, if you are concerned that the other person may not pay you back, agree a way for them to repay you that they can manage, or you could lose out.