If you child asks you to be a guarantor for them in a loan that are taking out, then you could have a tricky decision to make. You will want to support them, but may worry about them having this loan. It is worth taking time to consider different factors so that you can make the right decision.
Is the loan right for them?
It may seem rather patronising for a parent to sit down with their child and talk through the reasons that they are wanting to take on a loan. However, if you, as a parent, are going to be involved then you should know why. You might feel that they could cope without the loan and if they did not have it, then it could save you and them a lot of hassle as well as money.
Is it the right loan type for them?
It is worth talking through with them why they decided on this type of loan. As this is one of the only options available for those with a bad credit rating, then this is likely to be the reason why. If this is not the reason, then there may be other loans that they could take. Make sure that they have looked at the costs of different loan types and considered whether they are suitable options for them. If their credit score is poor, then they may still be able to find other loans. You could do some research together just to make sure that this type of loan will be the one that will be the most suitable for them.
Can you afford to be a guarantor?
You need to consider whether taking on the role as a guarantor will be something that you can afford to do. It is worth imagining the worst-case scenario that you have to repay all of the loan as your child defaults on every repayment. Make sure that you know how much you will be expected to pay each month (bearing in mind it could be more than the repayment your child is paying due to the admin costs of requesting the repayment a second time). Consider whether you will have enough money each month to afford it and even if you have, what you would otherwise have liked to have spent that money on.
Do you want to be a guarantor?
You then need to think about whether this is something that you want to do. Of course, as parents we want to do the best for our children. When they ask us to help them, we will want to do all that we can to help. However, helping them out financially can be tricky, especially when they have left home. If you have more than one child, then you may feel that you need to help each out the same and therefore it could cost you a lot more money than those loan repayments as you may need to pay out double, triple or whatever, depending on how many children you have. You may also find that there could be jealousy between the children if you help out one and not the other which could either effect your relationship with your other children or the relationships the siblings have with each other. You may also want to consider what effect being a guarantor might have on your own credit score as you will be associated with your child who presumably does not have a good credit rating.
What other options are there?
It may be better to help them out in other ways. You might be able to help them sort out their finances so there is no need for them to get a loan. You may be able to lend them the money yourself or perhaps even give them the money. Of course, you may not be in a position to do that but if you can just give them some help with budgeting or other financial advice then this might be enough.
It can be difficult to say no to your child and not help them but if you fear that you may struggle financially, it could affect relationships in the family or you do not agree with them taking the loan then this is what you will need to do. It will be hard and they may not appreciate it but of you can have a discussion with them about your reasons for not doing it, then this should help. If it is hard to tell them that you do not agree with the reasoning for taking the loan, it may be better to lie and pretend that you cannot afford to help them as this is not a reason that they could argue with or be upset by unless they know that it is untrue.