A guarantor loan is offered to someone who has a poor credit record but can find someone who will be willing to cover their repayments should they not be able to make them. These loans are growing in popularity with first times borrowers, who have not yet built up a credit record and those that have been in debt trouble before and therefore have a poor credit record. However, are they a loan that is worth getting?


The first thing to consider when looking at any form of borrowing is the cost. Obviously you will see the percentage of interest, but this does not always tell the full story. It is wise to calculate how much you will actually be paying back over the term of the loan as well as finding out about any fees and charges on top of the interest. This is not always that east to find out or calculate, but if you get in touch with the customer services department of the lender, they should be able to work it out for you. If they can do this, then you will be able to get a figure to tell you exactly how much money, in real terms you will be paying for the loan. Then you can think about whether you think that it is giving you good value for money. Consider what you are spending the money on and whether you think that it is worth this extra money, the cost of the loan, in order to get it. Another way of looking at it is to imagine the item you are buying is the cost of the loan repayment and see if you think it would be worth it.


It is good to think about whether you will be able to manage the repayments on your loan. Obviously you will have a guarantor in place to pay if you are not able to, but this is not an ideal situation. It is likely that they will not want to pay it really, they have probably just agreed on the assumption that you will make the repayments and their name on the loan will just allow you to borrow the money that you need. You therefore need to find out, before you sign up to the loan, how much the repayments will be. Then you will be able to work out whether this is something that you will be able to afford. If you are not sure then you will need to be able to make the repayments, then you need to see whether there are any changes that you could make that would help you to be able to afford it. It may be that you can find a way to make more money or to spend less money. You will need to look at your bank statements and work it out.


It is also wise to think hard about your choice of guarantor. Imagine if they did have to make some repayments for you, would it be something that they would be happy to do. They may agree to be your guarantor because they feel that you will not miss a repayment and they trust you. However, there is always a chance that you could miss a repayment and you need to think through the consequences of this. If they have to pay one or maybe more for you, will it have a bad effect on them. Could it leave them short of money and struggling and if so, will they blame you or will you feel guilty as a result? It could even mean that your relationship with them suffers if they struggle financially as a consequence of helping you out. They may also then expect you to pay them back at some point and this could be difficult for you especially if they put pressure on you to repay it really quickly. If you have been struggling anyway then having to think about making your loan repayments and paying them back could be extremely difficult. It could lead to disagreements between you and even have a detrimental effect on your relationship and this could be something that you really do not want to happen.

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