A loan for my friend?

A Fin24 user is in two minds about whether to make a loan on behalf of her friend. She writes:

I have a friend who wants to borrow money from me. He wants me to go to the bank and ask for a loan.

How do I make sure that he pays me back? What proof will I have that I gave him the money?

Friedl Kreuser of Summit Financial Partners responds:

My advice to you is to politely decline your friend’s request. Although I imagine you feel compassion for his plight and want to assist, the fact is that the National Credit Act is there for a reason.

When a consumer does not qualify for a loan, it is because they cannot reasonably afford to pay it back. Cheating on the system does not really help anyone in the long run.

If your friend misses any payments (which is unfortunately likely), you will be the one responsible for paying the bank.

The only way to get money out of your friend - if he fails to honour the agreement - would be to sue him in civil court, which no one wants to go through. This is provided that you have a written contract to prove the terms of your agreement, and that your friend actually has the means to pay you back.

If your friend is struggling to make ends meet, a more responsible way to assist would be to help him get in touch with a good debt counsellor who can actually help him pay off his current debt and become creditworthy again.

 - Fin24

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