A guarantor loan is a way that someone with a poor credit rating will be able to still borrow money. It works by you nominating a guarantor that does have a good credit rating who will be able to cover any repayments that you cannot. This will mean that the lender is not taking such a risk. The fact that the borrower does have a poor credit rating does mean that the loan can be dearer than others but it does open up an opportunity that would not normally be available to a borrower with a poor credit rating unless you used a company such as Omacl.co.uk.
Choosing a guarantor
Choosing a guarantor is a big decision. You will need to choose someone that knows you well and would not mind helping you out like this. You will also need to pick someone that has a good credit rating. Some people will not know anyone who will be able to help them out like this and normally it would only be family members that would be willing to help out on this sort of scale. Many people would probably think of asking their parents. This is because parents tend to have more money and it is the sort of thing that they might be willing to do for their children if they can. Parents normally want to help out as much as they can and if they do not have the money to provide the loan themselves, then they will be able to help in this way. Therefore many young people would pick their parents as candidates.
Advantages of choosing parents
It can be tricky discussing finances with friends and family especially if you are having financial difficulties. However, your parents are the most likely to be understanding and sympathetic and willing to help you. They are also older which means that they are more likely to have better control of their finances as well as a more secure income. This will mean that their credit rating will be higher and there will therefore be more likely to be accepted as guarantors. Some parents would help out by giving or lending their children their money, as they feel so close to them, but if they cannot afford it, this is the next best thing that they can do to help them.
Risks of choosing parents
There are some risks with choosing your parents to help you out like this. If you make all of the repayments on the loan, then everything should be fine. However, if you miss a payment and your parents have to pay it instead, then there could be problems. It may come at a time when they are struggling and not easily able to make the payment. They may want the money back form you as quickly as possible and you may not have it to give them. They may expect you to repay any money they have to pay, but you may have assumed that they would be happy to just spend that money but they may be expecting it back. If you have not properly discussed this, then you could end up falling out over it. You could also find that if you have siblings, they might get to know about it and there could be jealousy there that you had help and they did not. It could even end up making them fall out with you as well.
Is it the right decision for you?
It is worth thinking hard about whether this decision really would suit you. Consider whether it is worth all of the risks and if you need the money enough to make it worth falling out with your family over. Of course, you know your family and so you will know whether this is likely to be a problem or not. Some families have a lot of jealousy within them and some do not.
You also need to think about whether the loan is right for you as well. As well as comparing different types of loans and making sure that a guarantor loan is the right choice and finding the loan which is the cheapest for you, you need to consider whether borrowing money is really necessary. All loans are expensive and take commitment and can be a cause of stress. This means that you need to think about whether it is worth it. Consider what you are using the loan for and whether you think that you will really benefit from it. Is it something that you could save up for or do without, as if this is the case then it is probably better to go without the loan. It can be tempting to use loans as it means you can get things quickly and easily but you have to pay extra for them. Calculate the cost of the loan and decide whether it is really worth having these things if you have to pay that much extra money for them.