If you are asked to be a guarantor for a loan, then you need to think about whether this is something that you want to take on. Like everything, there are pros and cons to this decision and it is a good idea to think it through and take your time to make a decision and then you will know that you are doing the right thing.
What is a Guarantor?
You should firstly make sure that you understand what a guarantor is. A guarantor loan is a loan where the person borrowing has a poor credit record and therefore needs someone to be named that will make repayments for them if they do not have enough money. It normally works in that the borrower has the repayment taken from them but if there is not the money available to do it, then the lender will go to the guarantor and take the money from them. The specific details of how this is done will be within the terms and conditions of that specific loan and so you will need to check and find out.
It will therefore be necessary for the guarantor to make sure that they have enough money available for these repayments. In fact, it is probably best for them to assume that they will need to make every repayment. Hopefully, this will not be the case but being prepared is really sensible.
Is it a Risk to my Financial Situation?
As a guarantor you need to be aware that you might need to make these payments and potentially at short notice. You will need therefore make sure that you check all of the details of your personal finances to make sure that you will be able to afford to do this. Think about how it will impact your and your ability to buy other things if you are making the payments. If you have commitments financially, you do not want to risk those being problematic. If you have lots of savings, then you should be okay, but think about whether there might be a situation in the future where you might need the money and how you would cope without it.
Will it Help my Child?
You may think that the obvious answer is of course it will help you child. However, it is a good idea to have a talk with them first about how they are going to use the money. You need to think about what they are doing with the money and whether you think that it is a good thing for them to borrow for. Also talk to them about how capable they are of repaying and what they will do to make sure that they will be able to make the repayments. Also talk to them about what will happen if you have to make a payment for them and whether you expect them to pay you back for it at some point. It is good to establish this with them right from the start. This is because if you start making repayments for them and then find that you need the money, you may not feel you can ask them for it, if you have not discussed the terms of them repaying them. Also by taking on this loan, you might be showing them that it is okay for them not to repay their debts and that you will do it for them if they need you to. This may not be the attitude you want them to have as it is better if they take responsibility and learn how to handle their money properly.