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ADVISORY COLUMN: PERSONAL FINANCIAL ADVISER

Oran Hall | Learning a costly lesson about debt the hard way

Published:Sunday | July 31, 2022 | 12:09 AM

QUESTION: I got a car loan from a local commercial bank in 2017 based on the request of a friend who wasn’t able to get the loan by himself. The car was registered in his name and mine, but the loan was in my name. I know I made a very bad decision...

QUESTION: I got a car loan from a local commercial bank in 2017 based on the request of a friend who wasn’t able to get the loan by himself. The car was registered in his name and mine, but the loan was in my name. I know I made a very bad decision that has haunted me to this day. He was to get the money since the payment came directly from my account. However, he kept missing payments and reached out to the bank with suggestions for them to repossess and sell since he didn’t want to sell the car.

I relocated to the United States in 2019, which means there were no more funds in my bank account for them to take out payments. They repossessed the car in October 2020, and to this date, July 27, 2022, they have not sold the car. This means that the loan balance of $1,143,937.10 in October 2020 has moved to $1,905,393.19, not including storage or advertising. I have heard from people that they have seen the car on the road because it has unique features. I asked them to prove it was still in storage, and they sent some pictures, but I don’t trust the pictures for I have asked someone in Jamaica to visit the location. Any advice you can give would be greatly appreciated.

— KH

FINANCIAL ADVISER: You have said it yourself. You made a very bad decision when you borrowed money to facilitate your friend who was not able to get a loan to buy a car.

There is much that is not clear in your e-mail, but I will nonetheless see what I can do to assist readers to see the dangers of taking the course of action that you did. It seems that your main concern is that the car has not been sold while the debt keeps increasing as it keeps accruing interest.

By the way, where is your friend who landed you into this? Being in another land, it seems you may have to ask a responsible person who really cares about you to relate to the bank about the matter. Perhaps you may need to engage a legal representative to attend to your interest.

There are serious risks to borrowing money for another person, especially one who is not able to get a loan for whatever reason. I cannot see how somebody who is not able to qualify for a loan can be in a position to provide the funds to repay a loan to a good Samaritan.

Anybody faced with such a request should first seriously check the financial situation of any person who makes such a request. If there is an inclination to grant the request, iron-clad measures should be put in place to ensure that the beneficiary provides the funds to the borrower on time and in full to repay the lender.

People must live within their means. There is a mad rush to buy a motor car these days. Many people seem to believe that the first asset to acquire is a car, so they very promptly go to lending institutions to help them fulfil their dream.

I find this quote from Will Rodgers interesting: “Another way to solve traffic problems in this country is to pass a law that only paid-for cars be allowed to use the highways”. Do you think this applies to us, though he was not referring to Jamaica?

When people borrow money for the benefit of others, or become guarantors for loans, they risk ruining their credit. Loans that are not serviced satisfactorily show up on their credit reports, resulting in low credit scores, thereby restricting their ability to borrow.

In cases in which the good Samaritan’s assets are used to secure such loans, there is the risk of losing the assets, and the debt can balloon to the point beyond where it may not be possible to repay it as interest charges accrue.

Quite apart from the damage such a situation may do to a relationship, consider the possible negative consequences for the good Samaritan – a reduced cash flow to attend to short-term or recurrent personal needs and the reduced ability to achieve meaningful long-term goals, not just for self but for family.

When it is not one debt problem, it is another. The unwillingness of many people to wait seems to be a major reason for their debt problems. Delayed gratification may cause some discomfort, but it brings peace of mind and sustainable long-term benefits.

Oran A. Hall, author of Understanding Investments and principal author of The Handbook of Personal Financial Planning, offers personal financial planning advice and counsel. Email: finviser.jm@gmail.com