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For instance…If someone was going to get a debt consolidation loan but was really planning a vacation with the money.

Is it or can it be legally binding in how one spends the loan?
Thanks alot Brandon, makes sense.

6 Thoughts on Can lenders dictate what you do with your money?
  1. Reply
    January 6, 2013 at 1:36 pm

    No it makes no difference to the lender as the long as the contract/agreement states terms of payment.

    You’re going to owe X amount/month either way….. but they like a good story of what you’re doing with it (bank needs a reason to give you the money, and you’ll need to prove to them you have credibility so they trust you)

  2. Reply
    Geoff B
    January 6, 2013 at 1:37 pm

    Only an idiot would get a debt consolidation loan and spend it else where, so doubling your own problems

  3. Reply
    January 6, 2013 at 2:02 pm

    Yes they can dictate how the loan is used. Lie and fraud charges could be enforced

  4. Reply
    January 6, 2013 at 2:16 pm

    In the specific case of a debt consolidation loan, then yes the lender can specify. They lend the money to you based on your declared circumstances – so if you declare that you’re going to pay off your other debts, they lend the money on the basis that you won’t then have any other debts but the loan you owe them.

    If you spend the money on a holiday instead, you would have obtained the money by deception and defrauded the consolidation loan company. Fraud by false representation is a criminal offence which carries a 12-month jail term.

  5. Reply
    Jeff T
    January 6, 2013 at 2:49 pm

    When you receive a loan, the lender is concerned about one thing: your ability to repay.

    If you tell them it’s for “debt consolidation”, the lender assumes the other debts will be paid off with this money. If not, you lied to the bank to get money, and that’s the very definition of bank fraud.

    If OTOH, you sign up for a “general purpose” loan, then you’ve made no such promise.

  6. Reply
    January 6, 2013 at 2:56 pm

    Some places that make debt consolidation loans may actually pay the debts through their offices to make sure the debts got paid. This is actually the case if you are refinancing your house to consolidate the old loan and an outstanding HELOC.

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