There is a possibility that at some point in time that you might be asked by your child to be a guarantor for them so that they can take out a guarantor loan. You may wonder whether it would be the right thing for you to do or not. It is a tricky decision as there is a lot to consider.
What is a guarantor loan?
Firstly it is wise to find out more about guarantor loans. If you do not know much about them then do some research so that you can understand how they work and what you will have to do. Guarantor loans will vary depending on the lender as well, so find out who your child’s lender will be so that you can investigate them specifically. All guarantor loans will allow borrowers that have a poor credit record to be able to borrow thousands of pounds. They will be expected to make regular repayments, but if they struggle with this, then the lender will ask the guarantor to pay up instead. This means that the guarantor needs to have a good credit record and know that they will have the money available to make those repayments if necessary.
Can you afford to help?
You will therefore need to find out whether you can afford to help. You will need to find out how much you might have to pay each month first. It might be that you will have to pay more than your child normally pays as there may be extra fees added on if they have to take the money form you instead. Find out from the lender whether this will be the case. Then you will know exactly how much money you might have to find and this will allow you to be really well prepared. You will be able to check to make sure that you will have the money available. It is also wise to make sure that you will have enough even if the interest rates go up. There is always a chance that this might happen if the interest is a variable rate. If the interest is a fixed rate then it should not change and therefore the amount that you repay will not change. However, a variable rate can go up if the base rate goes up and so it is worth checking this and making sure that you will have enough.
It is worth thinking about whether there might be times when you need some extra money and if this guarantor arrangement might cause problems. It is always best to assume that you will have to pay every payment. It is unlikely that this will be the case but it is best to plan for this eventuality just in case and then you will know that you will be able to cope should it occur. If you child is suddenly unable to work or loses their job, for example, you will have to make all of the repayments and situations like this are very difficult to predict and therefore it is best to be well prepared.
Will it make other children jealous?
If you have more than one child then it is really important to think about the impact that you being a guarantor might have on them. If they need help form you in the same way you may not be able to be a guarantor for them as well as your other child. If you are being careful with money to make sure you have some if needed it may mean that you will have less to give them for things, that is if you tend to give them money. You might just find that they feel you are taking preference over the other child. Some siblings do tend to get very jealous of each other and so this could be a problem if this is the case. Some siblings are not like this and you will know what your own family is like and therefore what they are likely to be like in this specific situation.
Is it right to help?
Some parents may not think that it is right to help their child like this. They may feel that once they are old enough to borrow money it means that they are old enough to be able to manage their own financial affairs. Of course, as a parent it would be hoped that you would have helped them with finance by giving them some teaching on how to be good with money. This is not something that is taught in school and therefore needs to come from parents. If you feel they have not enough help then you may choose to give them advice instead of being a guarantor or perhaps as well. You might want to make sure that they learn from the experience and that they know how to improve their credit rating and choose to borrow wisely in situations which will improve their financial position.