Advice on Parent taking out Personal loan and implications?

alexander24

Hello all

I am in the position where I have had to approach a parent to help me with some debt consolidation.

The family member would be looking to take out a loan of £25,000 to pay off my creditors directly, we then have a monthly payment plan agreed between us to repay what they have borrowed over 5 years.

The reason I am exploring this route is the interest rates available to my parent are 3% and I am being offered rates above 10% the overall cost comparison on the loan would be hugely beneficial and enable me to free up more income to stop myself spiralling into further debt.

Can anyone help me to advise if we are doing anything wrong such as tax implications or not advising the loan company the loan is being used to paying a family
members debt.

Any advice would be much appreciated

Thank you

elsien

Can they afford to lose 25k if despite your best intentions you are unable to repay it, and what impact would that have on your relationship?
That has to be your starting point.
That, the reasons why you got into debt in the first place, and what's to stop you racking up more credit once your debts are paid off.

Sea_Shell

At least you are going about this the right way round and not asking them to be guarantor on a crazy APR loan, which leaves them exposed to even greater losses if you're unable to repay them. So kudos for that.

However, I'd second thinking about the "what ifs" and how it might impact their finances and your relationship if, for ANY reason, you can't make the repayments (or not all of them).

Have you sat down with them and had an "all cards on the table" discussion as to HOW you got into this debt in the first place, and how your finances have changed to the extent that you'll now be able to make these repayments.

[Deleted User]

alexander24 wrote: »

Hello all

I am in the position where I have had to approach a parent to help me with some debt consolidation.

The family member would be looking to take out a loan of £25,000 to pay off my creditors directly, we then have a monthly payment plan agreed between us to repay what they have borrowed over 5 years.

The reason I am exploring this route is the interest rates available to my parent are 3% and I am being offered rates above 10% the overall cost comparison on the loan would be hugely beneficial and enable me to free up more income to stop myself spiralling into further debt.

Can anyone help me to advise if we are doing anything wrong such as tax implications or not advising the loan company the loan is being used to paying a family
members debt.

Any advice would be much appreciated

Thank you

I think it is unfair of you to ask your parent to do this. There are numerous options available to tackle your debts that don't involve roping in family members and making them legally responsible for your debt.

Furthermore, if you have not tackled the root cause of your debt you will just end up back at square one except this time your parent will have a £25k millstone around his/her neck.

tacpot12

Your parents will have to declare the purpose of the loan, and if they don't declare this honestly, they will be committing fraud, the penalty for which will be a lengthy prison sentence if the loan company losses more than a few hundred pounds as a result of their fraudulent declaration.

If this is you only route, I would take it, but if this is an easy route because you parents will ask less questions that a debt advisor, go down the debt advice route. Your relationship with your parents is too valuable to be put above money or convenience for you.

There are no tax implications for your parents. I would definitely advise them not to take out any form of secured loan.