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December 2004 - Avoid Joint Purchases on Credit

Avoid Joint Purchases on Credit

☳ by Adam Aspilla

Buying on credit is a way of acquiring goods and services without immediately paying for them. It is granted on the basis of a person’s reputation for solvency and integrity. Credit is good if use properly, while imprudent use of credit including unnecessary joint purchase of item could cause various problems.

 

If you have a good credit rating, with decent and stable income, lending institutions would love to provide you credit facilities. In addition to credit cards, you could purchase bigger items like boat, car, cottage or a house by way of a loan or line of credit.

 

No one could exactly predict what would the future holds in terms employment, health and finances. If a person is married, it would be a smart move for him/her to purchase in her/his name only—items that depreciate in value (like boat, car and appliances). In the event of default-payment for whatever reason only one of the spouses would be adversely affected like garnishment of wages and bank accounts, seizure of assets and bad credit rating.

 

It is all right to purchase an item in both spouses’ names if a property to be acquired would usually appreciate in value like real estate. In case of default-payment, it would not create a problem in as much as the property would build up equity. The owners have the option to refinance the mortgage of the said property to pay off the arrears or sell the property to pay off the loan.

 

A good example was husband and wife both with good income and good credit rating. They jointly purchased a brand new car to replace their old car. The car was registered under the name of the husband, but on the promissory note both were co-makers. When they encountered financial problem the car was seized by the creditor and sold it in a public auction. As a result, there was a deficiency in the amount of $3,500.00. Collection agent was hounding both husband and wife and their credit rating went down the drain.

 

Had the husband only purchased the car by himself, he would still get approval for the car loan because he had a good income and good credit rating at the time of purchase. The wife should have been spared by the harassment of collection agent and from ruining her credit rating.

 

To ward off the experience of the above couple, avoid a joint purchase on credit on items that depreciate in value if one of you could qualify without the other. Make a joint purchase if either of you could not qualify the credit requirements of a lender. Be wise on your credit purchases. Proverbs 6:6 says: “Go to the ant, you sluggard! Consider her ways and be wise.” 

 

Adam Aspilla is a Senior Financial Counselor of the Debt Clinic of Canada Inc. and the author of the book, You Can Negotiate All Your Debts. He also writes a biweekly column, “What Matters In Life” in “Taliba Newspaper. For free initial, professional and confidential consultation, please call 905-306-7572.