Can you apply for a personal loan on behalf of someone else?

Whether you’re thinking about helping your teen get their first car, or trying to help a family member out of a tricky situation, you may be wondering if you can apply for a personal loan on behalf of someone else.

The simple fact is that no, in Australia you generally cannot apply for a personal loan on behalf of someone else.

You could, in theory, apply for a personal loan in your name and use the funds to benefit someone else. However you cannot, for example, fill out a personal loan application in someone else's name. 

Why can’t you take out a personal loan on behalf of someone?

A personal loan is a financial agreement between two parties; the borrower and the lender. It is a serious financial commitment that requires the borrower to meet the eligibility criteria and their ongoing repayments. Any missed repayments or loan defaults can have serious consequences for the borrower's financial health and credit history. 

This means that the lender must be sure that the borrower consents to the personal loan arrangement. Having a third party take out a personal loan on behalf of an individual does not meet these requirements. In fact, this may even be considered fraudulent behaviour by the lender and fall into the category of identity theft.  

So, what are your options?

If you're trying to help someone secure a personal loan, you can provide guidance and assistance in preparing the necessary documents and information for the application, but the borrower must submit the application themselves.

However if you are, say, just trying to help a family member cover medical expenses, or help your teenager purchase a car when they’ve yet to develop a credit history, there are alternative options you could consider. 

Joint application

If the individual you were considering taking out a loan on behalf of has little to no credit history or income, you could consider a joint application personal loan. Assuming this individual is 18 years or over, you may both sign up for the personal loan together, with your credit history and income being used to bolster the application. 

You will both be equally responsible for ensuring loan repayments are met, and equally responsible for any consequences if you miss a payment. This is a significant financial decision that should not be taken lightly, as any adverse payment behaviour can severely impact your credit history and credit score. 

Provide collateral

If the borrower can't qualify for a personal loan themselves, you may want to consider helping them secure the personal loan by offering up collateral, such as an asset like a car or jewellery. 

As secured personal loans are secured by collateral, they carry less risk to a lender that the borrower may default. The lender knows the borrower will work harder to ensure repayments are made on time, or risk having the asset seized in the event of a default to pay off the debt.

That being said, the lender will still need the borrower to demonstrate they can service the loan. This means they will still need to be earning an income that meets any eligibility requirements. Your providing collateral simply makes the loan more likely to be approved than the borrower applying for an unsecured personal loan. 

Gift or financial support

Instead of taking out a loan, consider providing financial assistance directly to the individual as a gift or loan without involving a formal lending institution. Be clear about the terms and expectations for repayment if it's a loan, as debts between family or friends can severely impact a relationship. 

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