Will a Guarantor Loan help me?

If you need a loan but you have a low credit score then you may worry that there will not be any loans available to you, particularly if you want to borrow a large amount of money. However, there are guarantor loans available for this purpose. These will allow anyone will a poor credit score to be able to borrow money as long as they can find someone who is prepared to act as a guarantor. There can seem like something that would be really helpful but there are some issues that you need to consider first.

Can I find the right guarantor?

Finding a guarantor may not seem that difficult. You just need to find someone who has a good credit record who will be willing to sign for you. However, you and they need to be aware that if you miss a payment the guarantor will have to pay it. In some circumstances, if the lender feels the borrower is not reliable, they will just choose to take money from the guarantor without trying to see if the borrower has it first. The guarantor will also have to cover any costs incurred by the borrower missing repayments. It is important that the guarantor is fully aware of their responsibility and the risks that they are taking. Even if the borrower is completely sure that they will never miss a repayment, there is always a risk that this might happen and the guarantor may need to make the repayment instead. This means that the guarantor will need to ensure that they always have enough money available to cover the repayment just in case. They could end up paying none but in a worst case scenario they could end up having to repay the full loan and they need to be aware of this.

It could be that you end up falling out with the guarantor if they have to repay a lot of loan as they may feel that this was more than they had signed up for. It could therefore be wise to discuss this with them and ascertain what their expectations would be. It may be that they would expect the borrower to repay any money that they had to pay for example. If this is the case then it is wise for both parties to have a copy of a written agreement stating this so that they are in agreement with what will happen in this scenario. This should help to maintain a good relationship between them.

Will the money help to improve my life?

It is worth thinking too about the impact that the money will have on your life. Think about the difference that it will make and whether it will be really worth it. Consider whether it might be better to just go without the item or whether you can save up for it instead. You may feel that you cannot wait or that you will not be able to save up very easily. It is good to imagine the difference it will make but also what might happen if you do not get it and whether the difference will be significant and worthwhile. It can sometimes be hard to step back and take the emotion out of this sort of decision. However, you can discuss it with someone else and they might be able to help with this. It might even be wise to discuss it with your guarantor as they may want to know your reasons for taking out the loan anyway. They may be more likely to help you if they feel that the reasoning behind your loan is worthwhile.

Can I afford to repay what I borrow?

Although your guarantor will cover any repayments that you cannot afford, it is wise to still think about whether you can afford to cover the repayments. They will not want to repay the loan for you unless it is really necessary. You will also probably want to pay for it yourself if you can, rather than rely on someone else to do it for you. Therefore, you need to find out how much the repayments will be so that you can calculate if it is an amount that you can afford. It is really important to make sure that not only do you think about whether you can afford it now but whether you will be able to in the future as well. It is worth considering if you have a variable rate loan and what might happen if the prime rate and therefore the rate of your loan goes up and if you will still be able to afford it.

If you can afford the loan repayments, can find a guarantor and can justify the cost of the loan then a guarantor loan could help you. If you have a good credit score though, you may find that there are other cheaper options that might suit you better.

Is it Right to Borrow Money When you have a Family?

If you have a family that you are financially responsible for then you will be right to think hard before getting a loan. Obviously, you have a commitment to make sure that you have enough money for the children, but there are still circumstances where getting a loan could be helpful.

What is the loan for?

It is worth starting by thinking about whether you can justify the purpose of the loan. You need to think about the benefits of the loan and whether it is worthwhile. Sometimes it is easy to decide and other times it is not. If you are getting  money to treat yourself to something you do not need then it is better to wait and save up for it but if you are borrowing money to buy a home then this could have a very positive impact on your future as long as you are confident that you can afford to do it as you will save money on rent. It is good to think about the benefits of the loan and consider whether it really is necessary for you to borrow the money. It is not always easy to decide this and so it could be worth discussing it with other people; perhaps friends and family, who will be able to help you make a good decision.

Is it too expensive?

As part of your assessment it is worth trying to find out how much the loan will cost you in total. The costs will include the interest payments and any charges. Consider what you are buying with the loan and how much it will cost you overall. Imagine if the asking price of that item was that much, whether you would buy it. You may be perfectly happy to pay that much for the item, but it might make you think twice about buying it. Try to think without emotion, which can be hard. You might feel you would pay anything for an item but realistically you will have a limit to how much you can afford.

It is worth making sure that you are looking at getting the right type of loan for you. Loans have different purposes and you want the one that suits your purpose the best. They vary in cost so try to get the cheapest type of loan that you can and also try to go with the cheapest lender. You also need to think about the amount that you borrow. If you borrow more then the loan will be more expensive. Therefor, borrow the minimum that you can, making sure that you use any savings that you can first so that you keep the costs down as low as possible.

Can you afford it?

It is good to consider how much the repayments will be and whether you will be able to afford these. If you miss a repayment then there will be additional charges that you have to pay and these will be high. These will make the cost of the loan and the item you are buying with the loan much higher and you need to be aware of this. It is so easy to just take out a loan and think about the repayments afterwards but so important to plan how you will repay first. Consider whether you will normally have enough money and if not, what you will have to change in order to ensure that you can afford it. You might have to reduce your spending in other areas, which will be easier for some people than others. You may need to find ways to earn more money, which can be very difficult for some people as well. Consider what might work for you.

It is important to make sure, that if you have a variable rate of interest on the loan, that you will be able to afford the repayments if the interest rate goes up. A short term loan is lower risk with regards to changes in interest rate and getting a fixed rate loan will protect you against rate changes anyway. However, if you have a long term loan with a variable rate then there is a real risk that the interest payments could go up and you will need to make sure that this is something that you will be able to afford.

Once you have done all of this research then should have an idea as to whether you can afford to take out a loan or not. You will not want to take as many risks if you have a family. Make sure that you are confident that you will be able to keep up with the repayments and that you will feel that the loan has been worthwhile once you finish paying it all off.