Why would you borrow money for someone else?

There are some circumstances when you might be asked to borrow on someone else's behalf. Some of these can include:

  • A family member or friend already has a personal loan and wants to consolidate their debts, but is unable to do so due to their credit score.

  • A family member or friend cannot get credit at all because of previous financial problems that still impact their credit score.

  • Someone who're recently moved to the UK and doesn't have enough of a credit record to take out a loan or credit card.

What are your options when borrowing for someone else?

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.

A secured loan: A secured loan uses an asset as collateral to cover the debt in case you cannot repay it, e.g. your house or car. This risk of a secured loan is that if you're unable to repay the loan, the lender can repossess the asset to recoup the loan.

What are the risks of borrowing for someone else?

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 to send you enough money to cover the loan repayment each month, otherwise you will have to pay it yourself. Here is more on how secured and unsecured loans work.

What are the alternatives to borrowing for someone else?

If you're hesitant to take out debt to help a friend or family member, there are other ways you can help.

Use your savings: If you have enough savings, it might be preferable to lending money from your personal funds rather than taking on debt. Even if your friend or relative is unable to pay you back, you won't be saddled with unwanted debt. Read more about lending to friends.

A guarantor loan: This is a type of 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.

This saves you from taking on debt personally, but you are still responsible as a guarantor if the borrower is unable to repay the loan. Here is more about how to decide if you should be a guarantor on a loan.