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That’s not my debt

In March 2022, Linda applied for a loan with her sister, so that her sister could buy a car. Linda expected that her sister would make all the loan repayments, as she would be the one using the car. However, after a few months, Linda’s sister stopped making repayments and the car was repossessed. When the lender asked Linda to pay the rest of the amount owing on the loan, she explained that she took out the loan for her sister’s benefit, so her sister should be liable for the debt. Linda asked the lender to remove her name from the loan contract.

The lender refused to remove Linda’s name from the contract, so she complained to FCSL.

Dispute

Linda said she only agreed to be a co-borrower on the loan to help out her sister. Linda said that she did not use the car, so did not think she should be liable for the debt.

The lender said that Linda was listed as a co-borrower, so she was jointly liable for the debt. The lender said that the terms of the contract had been explained to Linda before she signed the contract, and they would hold her responsible for the amount still owing.

Review

We told Linda that when she agreed to be a co-borrower on the loan, she became jointly responsible for the loan repayments. We explained that because there was still an outstanding amount owing on the loan, we could not ask the lender to remove Linda’s name from the loan contract. We found that the lender was entitled to pursue Linda for payment.

We suggested that Linda discontinue her complaint, as we were unlikely to find that she should be removed as a co-borrower. Linda accepted our view.

Insights for consumers

It is important for consumers to carefully consider the risks of co-borrowing on a loan. A co-borrower has a shared responsibility to repay the debt, even if they did not take out the loan for their own benefit.  If the other borrower is unable to pay the loan, the co-borrower may have to pay the entire amount still owing.