We got a joint loan – now we’ve split who has to pay?

posted by in Debt

Splitting up

What does a relationship break up entail for your finances?

We get asked the above question a lot, so we thought we’d clear up the debt law around joint loans, also about what it means being a guarantor on a loan or credit product.

If you take out a joint loan with someone, you are both ‘joint and severally liable’ for the repayment of the whole amount.

Joint loans

Let’s go through it with a few example scenarios for a joint loan of £10,000…

Scenario 1: Most simply, if you borrowed £10,000 with your partner and your partner passed away, you’d be expected to repay the outstanding amount, up to the whole £10,000 (plus the interest due).

Scenario 2: If you and your partner borrowed £10,000, and then your partner left you and went bankrupt with no assets and no income, you and you alone would be expected to repay the outstanding amount, up to the whole £10,000 (plus the interest due).

Scenario 3: If you and your partner borrow £10,000 and then your partner loses their job and has to take out an IVA, their part of the debt is included in the IVA. When the IVA is accepted by creditors the debt will receive a payment each month through your partner’s IVA but you are liable for all of the rest of the loan.

The bank cannot force you to repay more than was owed and even though your partner is making some payment through the IVA, you are liable for the rest of the whole amount borrowed. So if they had to pay 20p in the pound on the loan (20% in other words), you’d have to find the other 80% (plus the interest on that 80%).

In reality we come across many different scenarios with joint and several liable loans, so if there are issues with you or your partner being unable to pay we’d recommend you talk to us.

Loan guarantors

The situation with being a guarantor is fairly similar. Importantly, we’d advise you: Don’t act as a guarantor for any loan product for anyone else unless you’re in a position to be able to afford to repay the loan.

Why is this important? If the person who borrowed the money cannot repay it, the creditors will turn to the guarantor – you – for payment. This could leave you in debt trouble, through no fault of your own.

The same thing applies to additional card holders; if you have a credit card and you’ve given your permission for someone else to have an additional card on the same account, you are responsible for any spending they do on that card.

Joint accounts

We all know relationships can be very difficult; add a joint bank account into the mix and it can be even more fraught!

A joint bank account with an overdraft is just like a joint loan. If your ex-partner disappears and runs up bills on the joint account, the bank will hold you responsible for the debt’s full amount. Again, you have ‘joint and several liability’.

And hoping that you can argue that it’s your ex-partner’s fault doesn’t tend to work unfortunately; banks are unlikely to remove names from joint accounts. In our experience some institutions more amenable than others but most banks don’t like to do it.

The bottom line

Our advice is this: before you take out a joint credit product you need to stop and think what would happen if you had to repay the full amount.

We hope your relationships do stay solid, and that any joint lending will never be an issue, but as we know from our clients, relationships do come to an end and it’s worth knowing where you stand when you’re financially, as well as romantically, connected.

Nobody has a crystal ball and we can’t predict the future with any relationship, or financial situation, but if you’re worried about joint debts in your name try our online debt advice too Debt Remedy or contact us.

Matthew worked as an IVA drafter prior to working in social media. In a former life he wrote scripts for Eastenders, Emmerdale and Hollyoaks. He has 3 chickens, 2 dogs and a rabbit.

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  • alejandro

    what do you know about Scottish bankruptcy

  • moneyaware

    Hi Benson,

    Thanks for posting.

    Obviously I don’t know all the details of your situation but usually joint mortgages and secured loans are arranged with “joint and serval” liability.

    This means that you’re both liable for the full amount owed if the other doesn’t pay. So in the eyes of the lenders there’s no 50/50 split on the debt, just one debt that both people owe.

    Speaking to the lender is probably the best first step to work out what the situation is for your specific debts.

    Sorry if this news isn’t what you were hoping for and all the best.

    James

  • stephanie

    Hi

    me and my partner are looking at getting a joint mortgage. Both of us are first time buyers but my credit score Isn’t great. I have a poor rating but with no serious arrears. My partners credit score is fantastic. Do you know if my credit score would affect us massively in getting a mortgage?

    thanks for any advice

    • moneyaware

      Hi Stephanie,

      Thanks for posting.

      Generally, if you have a poor credit rating you may find it difficult to take out credit, including a mortgage.
      It’s important to remember that most things will ‘drop off’ your credit file after six years. There are also things you can do
      to improve your credit file, we’ve got an article about this here:

      http://moneyaware.co.uk/2013/10/how-to-improve-your-credit-rating-after-a-dmp/

      The policies for mortgage providers tend to vary in terms of what they will accept and this can be based on various factors
      such as how you’ve managed any debts you’ve had over the past few years.

      We have a specialist mortgage team here at the charity who offer free advice. If you’d like to get in touch with them for
      a chat you can find out how to do so here:

      http://www.stepchange.org/Howwecanhelpyou/Mortgagesandequityrelease/Mortgages.aspx

      I hope this helps,

      Jen

  • Bluebird01

    Hello

    My partner has a gambling addiction. We have tried several strategies to keep him away from online gaming but he finds ways to revert back to it. I had hold of his cards for him so he didn’t know his details to proceed with payments but he took it out of my purse to use. I told him to forget that plan and he can control his money- at the end of the day I am his partner not his parent and don’t need the extra responsibility- I don’t wish a life for us like that.

    Following on, he took out a loan to pay off his overdraft of £3000 some which he amounted up through gambling. Unfortunately he continued to gamble so he now has a loan to pay off for £200 odd a month, and still has the overdraft. His new latest plan is to take out a bigger loan, to pay off the overdraft and the loan, and then continue to pay out for the outstanding loan. To my disappointment he has applied for a loan and put myself as a guarantor- which he hasn’t discussed with me. Luckily, the loan provider came back and said I was unsuccessful as a guarantor as I am a student and cannot afford to pay the loan back if it got to that. I am pleased he won’t be able to use me as a guarantor however I am very dissapointed he has attempted to put me as one without my permission.

    The worrying thing is, if it was accepted, would he have even told me? Will there be loan companies out there desperate to fish people in, regardless of proving my finance which in turn he could put me as a guarantor.

    I am very unsure what to do next. I hope someone can give me advice.
    Thank you.

    • moneyaware

      Hi there,

      I’m sorry to hear about this situation.

      If your partner hasn’t already received help, he could try getting in touch with Gamcare for advice about his gambling problem:

      http://www.gamcare.org.uk/

      If someone signs your name on a guarantor loan form without your permission, it’s considered fraud. If the loan were to be accepted with you acting as a guarantor, and this was something you’d hadn’t agreed to, you’d need to report it as fraud so you wouldn’t become liable for the loan repayments.

      Understandably, a situation like this may cause a strain on your relationship.

      We can also offer advice to your partner on the best way to deal with his debts. If he’d like to get in touch with us, he can find out how here:

      https://www.stepchange.org/Contactus.aspx

      I hope this helps but if you have any more questions please let us know.

      Kind regards,

      Jen