Short insight – Why you should lend your own money

So you want to help that brother, cousin, friend etc who is struggling financially? Then do it with your own money………..not bank’s money!

Recently I came across an incident on the above lines. It appears that one of the bank clients Paul (not his real name) obtained a loan to purchase a vehicle on behalf of someone else. It is likely that this someone else, let’s call him Jamlick, could not qualify on his own name either because he has no bank account or more likely he has been adversely listed on Credit Reference Bureau (CRB) for being a defaulter and his bank declined his loan application.

Jamlick, having probably approached other financiers who were similarly reluctant to lend him the required amount on account of his CRB listing, it is likely that he then approached his brother, cousin, friend Paul to borrow on his behalf with a side arrangement where Jamlick would be depositing money in Paul’s account to cover loan repayments. Paul having had a good track record and not having been listed as a defaulter on CRB had no problem obtaining an asset finance loan from the bank.

This arrangement seems to have worked quite well until Jamlick defaulted on his commitment and the account is now in arrears. Naturally the party known to the bank is Paul whom we duly followed up and it is only after several follow up calls where he makes several unfulfilled promises to deposit money to cover the overdue instalments no doubt while pleading with Jamlick to do the honorable thing and settle his obligation that he reveals that the vehicle is being used by a friend elsewhere. He now requests the bank to arrange for repossession of the vehicle (that is in arrears anyway) as his friend has reneged on the arrangement that they had made!

If at this point you expect me to feel sorry for Jamlick’s predicament then you’re wrong because he is just a damned idiot! Here’s the reason why!!

From the outset and in the normal course of business between friends this is an arrangement that I am sure happens out there without any issues so long as both the parties adhere to their informal agreements. Whether the borrower gets any other benefit for his name to be used I am not sure but suffice is to say that very few business people would lend their names for free!

It is also almost certain that the initial deposit for the vehicle and insurance premium required and any other incidental expenses have been paid from Jamlick’s pocket and he now feels a sense of entitlement in the ownership of the vehicle because after all isn’t he the one that has been making the loan repayments to date and has he not met the earlier financial obligations towards purchasing the vehicle?

To cut a long story short, right now Paul’s reputation and financial credibility is at stake as the legitimate borrower with the bank and may find himself listed with CRB if the loan remains in arrears. The law also recognizes him as the legal owner of the vehicle given that it is him name on the log book albeit jointly with the bank and as such hiding under the cloak of having assisted someone is neither here nor there. The bank expects the loan to be serviced regularly and it is in Paul's best interest to settle the outstanding obligation and then pursue Jamlick separately to pay him back what he has paid to the bank!

Any side arrangement whether verbal or in writing with a 3rd party are therefore not recognized under any law and it is Paul who is likely to suffer the consequences of his misguided but well intentioned actions.

He should therefore have lent his own money and not involved the bank in his tomfoolery and he is therefore a damn idiot!!