SPONSORED: Being a guarantor – the pros and cons
With the loan market coming under greater scrutiny, many of the more responsible lenders have opted to ask for guarantors in response.
Much like agreeing to be a guarantor for someone when they move into a new house or flat, this entails you having to vouch for this person should anything go wrong with their repayments. This is a massive leap of faith and is often reserved for family members such as mothers and fathers, however close friends and work colleagues can decide to take on this important responsibility as well.
So, with this being such a crucial decision, what should anyone pondering the possibility of becoming a guarantor bear in mind? glo, one of the UK’s more ethical lenders who specialises in guarantor loans have been quick to give all the advice they can on the important area of lending via some of their excellent resources. Their key advice is:
Ensure You Know Them Well
This may seem like a glaringly obvious one, but you would be surprised and some people are very good at coercing people to become their guarantors. You need to ensure you know the person you are agreeing to vouch for extremely well indeed. If you thing there are any question marks over their character or ability to make all of their loan repayments in time, then just say no. Should they default on their loan and conveniently disappear, you will be the one left picking up the pieces and most crucially, the bill.
Find Out Their Motives for Borrowing
Although under normal circumstances one would never pry into people’s private circumstances, in this situation you are more than entitled to find out what the loan is for. If you are going to be ultimately responsible for the repayments then it is your business to find out what the funding is required for. If you do not agree with the reasons or think that it is a bad idea then you should say so and if this is the case, then you should not agree to be their guarantor. Crucially, if you think the individual borrowing the money is securing funds beyond their means then it should be a short, sharp, no.
Could You Help Them Financially?
If the borrower in question feels comfortable asking you to be their guarantor, then the likelihood is that you have a pretty strong relationship. If you can afford to lend them the money, or at least a significant chunk of it, yourself then this could be the prudent way forward. This will mean less interest and less time to pay off any debt and essentially be lower risk.
If you cannot afford to do this, then you should consider being their guarantor, provided you are happy that you have considered the aforementioned factors. You will know your own budgets and hopefully you will have.
Do You Know a Better Alternative?
Often, borrowers have rushed into choosing their lender, so if you know of a cheaper or more suitable option do not be afraid to suggest this. As you will no doubt be aware, there are all sorts of lenders out there from low-interest, ethical lenders to very expensive payday options and you may well have had some good or bad experiences yourself.
So, if your friend or family member has come to you to ask you to be their guarantor and you are not happy with the loan they are taking out then you should either say now or recommend an alternative product to them.
One of the most important things to remember about being someone’s guarantor is that you need to be 100% comfortable with every aspect of the process, if you are not then you should not say yes, as this is a very serious commitment.
Again, if anything goes awry then you are the one who it legally obliged to make the repayments and this could also damage your credit rating.
Your Credit Rating Is Not Ideal
If you have concerns over your own credit rating then to be honest, you should probably say no. Responsible lenders will be looking for guarantors who have a good track record so they can trust in their ability to make the repayments should there be any issues. So, if you are in the process of rebuilding your own credit rating or know that it is far from ideal, you should say no:
- This will save a lot of time should you be refused
- Saves you from potentially damaging your credit rating if something goes wrong
- It will also save you from any potential embarrassment
You Don’t Agree With Loans
Lastly, many people do not agree with the concept of a loan, and this can often be a sound way of thinking about things. Although there are strong arguments for this, there are actually a lot of very trustworthy loan providers out there with good interest rates and excellent customer service.
Admittedly, loans should be a last resort but they can also be an excellent way to build credit ratings up. Many people need to take out credit of some sort in order to show that they are good at repayments or they can get refused for things such as mortgages, so they can serve an excellent purpose.
If you are principally opposed to loans, then you should probably decline any request to be a guarantor but depending on the borrowers’ circumstances, it may not necessarily be such a bad idea. It may be worth listening to their reasons before deciding and you can consult websites such as the Money Advice Service if you wish to learn more about many of the loan products available here in the United Kingdom.