A guarantor loan can help out those that have a poor credit record. This is because they will ask for the borrower to nominate someone to be a guarantor so that if they cannot make the repayment their guarantor will be asked to pay it. This can seem like a good idea so that someone who would not normally be able to borrow money has a loan available to them. It is worth noting though that they can be rather expensive as the lender is still letting someone with a poor credit record borrow money. Although they have a guarantor with a good credit record backing them up there are still costs to taking the money from a different account and so these are added in.
Deciding on who to ask to be a guarantor for you can be difficult. You will need to pick someone who has a good credit record and that will be willing to support you like this. They will obviously need to sign up to say that they agree to make any loan payments that you miss. This is a big commitment as they will need to be sure that they will have the money available to do this if necessary and that they would be happy to many multiple payments and potentially all of them. It would also need to be someone that you were happy to discuss your finances with.
It could be anyone that you choose and picking a family member or friend would be the most likely options. You would obviously need to explain to them what is happening, why you want the money and what their responsibilities would be.
It is worth talking to them about the possibility that you may not be able to afford to make the repayments. Presumably you will look at them and work out how you will manage to pay them. It might be that you normally have enough money available each month to cover them anyway or that you have some ideas on how you will do this.
If they do have to make repayments they may expect that you will then repay them as soon as possible or they may be happy to take the risk and not expect a repayment. It is really important to make sure that you have an understanding of the expectations that you each have. It could even be worth writing down your agreement so that it cannot cause arguments in the future. If your guarantor has to keep making repayments and then runs out of money they may feel that you should repay them as soon as possible and if you do not have the money available to do this then you could end up falling out over it. If you have an agreement written down then there will be no debate on how repayments are organised and you should have no reason to fall out over it.
Whoever you ask you will need to know really well and have a trust between you. Whether that is a friend or family member there is a risk that you might fall out over the plans and payments and so it is good to think hard about this. With a family member to tend to have a bond beyond that which you would have with a friend. A friend is there for you but a family member is more likely to put you first and to do things out of love and caring as well as friendship. Obviously this various and depends on your relationships with friends and family members.
If you depend on this friend a lot then you do not want to risk falling out with them. It is important that you think about how important their friendship is to you and how you would feel if you lost that. It is not a nice thing to have to do but it is worth considering the risks. It may be that you fall out when you ask them to be a guarantor. They may not want to do it and if they refuse this might offend you and so you might feel that you do not want to be their friend anymore. They may accept in order to preserve the friendship but it could affect your relationship with them as they may wish that they had not. If you start to miss repayments then this could make things even worse. They will then have to start paying out and they may not have expected to have to do this. They may need the money themselves and want you to repay it really quickly and you may not be able to afford to. This can lead to all sorts of problems and even if you have talked about it beforehand and planned what might happen it can still lead to bad feelings.Read More