The story
Alexandra’s daughter Marie borrowed money from Three Oaks Finance to buy a car. Almost immediately Marie defaulted on the loan and Three Oaks Finance repossessed the car. Marie asked Alexandra to help get her car back.
Alexandra offered to pay Three Oaks Finance the loan arrears and repossession costs. Three Oaks Finance said it would only accept Alexandra’s money if she joined Marie as a borrower on the loan agreement. Alexandra did not want to sign the loan agreement, but Three Oaks Finance refused to take her money otherwise. Alexandra wanted to help and felt she had no option but to sign the loan agreement.
Marie defaulted on the loan again. Three Oaks Finance was unable to repossess the car because it had been stolen. The car was uninsured. Alexandra refused to repay the debt, saying she only signed the loan agreement to help her daughter out. Three Oaks Finance referred the debt to a debt collector.
Dispute
When Alexandra applied for finance from another finance company her application was declined because of the Three Oaks Finance default listing. Alexandra said she did not owe Three Oaks Finance any money. Alexandra said she only signed the loan agreement so that Three Oaks Finance would give her daughter her car back. Alexandra wanted Three Oaks Finance to remove the default listing against her name.
Three Oaks Finance declined to remove the default listing. Three Oaks Finance said Alexandra had signed the loan agreement as a joint borrower and together with Marie was obliged to repay the debt. The loan was in default and Three Oaks Finance considered it was entitled to list a default against Alexandra’s name.
FSCL’s review
We explained to Alexandra that she had signed the loan agreement as a joint borrower and was liable to repay the debt to Three Oaks Finance. Although the loan was originally Marie’s debt, by co-signing the loan agreement Alexandra was now also a principal debtor, meaning Three Oaks Finance could ask her to repay part or all of the loan.
We could understand Alexandra wanted to help Marie get her car back, but Three Oaks Finance had done nothing wrong by asking Alexandra to sign the loan agreement. Marie had defaulted on the loan once, Three Oaks Finance was concerned she would again, and needed the additional security it believed Alexandra would provide.
If Alexandra wanted the default listing removed she would need to repay the debt to Three Oaks Finance.
Outcome
Alexandra accepted our advice and offered to pay Three Oaks Finance $5,000 in full repayment of the $8,900 debt. Three Oaks Finance accepted Alexandra’s offer. However Alexandra needed to borrow the $5,000 and was unable to do so because of the default listing.
Alexandra then offered to repay the debt at $15 a week. Alexandra explained that given her financial situation this was the most she could afford. Three Oaks Finance accepted Alexandra’s offer and agreed to take no further recovery action while the loan repayments were being made. The default listing remains against Alexandra’s name.
Lesson
Take care when agreeing to help out with another person’s loan. By signing a loan agreement, you also become a borrower meaning that you agree to repay all or part of the loan. If the other borrower fails to pay the loan, you will be liable for the entire debt, even though you may not have received any personal benefit from the loan.
