If you are looking to take out a guarantor loan, it is important to carry out the required level of research. There are many good reasons why you should take out a guarantor loan but equally, there will be some reasons why you should avoid this style of loan and focus your energy on another type of loan. Depending on who you turn to for advice, you may find that you only receive one side of the story. This isn’t enough for you to make a fully informed decision so if you are looking to make your mind up over whether a guarantor loan is right for you, we have the pros and cons of being a guarantor.
The applicant and guarantor should know each other very well
While the main criteria for a guarantor is someone that doesn’t have a direct financial relationship with the applicant, it is important that the guarantor and the borrower know each other. There should be a personal relationship in place and there should be a level of trust between the two parties. This is because guarantor loans are very serious and there are consequences associated with these loans.
If the borrower is unable to pay the loan off, the guarantor finds themselves in position to pay off what could be a lot of money. There may even be repercussions to their credit status and report if a financial issue remains unresolved in the long term.
With all of this at stake, it is vital that the guarantor knows the person who is applying for the loan and that they trust them. If the relationship isn’t that strong, it may be that acting as a guarantor will cause problems or could cause serious issues to arise at a later date.
Find out the applicants motives for borrowing money
While many people don’t like to ask personal questions about finance, if you are going to act as a guarantor for someone, it is only fair that you find out why they are looking to request the money. If the applicant is unwilling to provide you with the reason or reasons they have for borrowing money, you shouldn’t be willing to provide them with your backing.
Yes, they may be in a difficult position and they may have embarrassing reasons for their application but if you are placing yourself into the position of providing them with your backing as a guarantor, you deserve to know the full reasoning behind their application.
Can you help them out in another way?
There is a lot to be said for a guarantor loan in that it offers a more attractive rate of APR for most borrowers. People with bad credit scores are unlikely to get a loan offer or they may find that they are being asked to pay a lot of money to service their loan. A guarantor loan will provide them with a better option when it comes to finances, but there may be other ways in which you can provide a person with backing.
Some people may be able to provide the applicant with the funds directly. This should be taken seriously with legal terms drawn up and an agreement about repayment, and even interest, put into place. A loan of any nature should never be a frivolous item but if you have the funds available, it may be best for you and the applicant to create a loan agreement between yourselves as opposed to calling on the services of a guarantor loan firm.
Both parties should also be looking for a better option that may allow them to achieve their goals without borrowing. While guarantor loans are often a smart and sensible option, they aren’t the only option when it comes to finance. Even if you do decide that a guarantor loan is the best option for your needs, you should try to review all of your options before committing.
The role of the guarantor is crucial in a guarantor loan, as the name suggests. There is no getting away from the importance of this role and the impact that a guarantor loan can have on the lives of people involved with the process. When it comes to making the right decision, it is best to fully think about what is on offer and what the best solution for everyone is.
Andrew Reilly is a freelance writer with a focus on news stories and consumer interest articles. He has been writing professionally for 9 years but has been writing for as long as he can care to remember. When Andrew isn't sat behind a laptop or researching a story, he will be found watching a gig or a game of football.
