As a parent we like to help our children as much as we can. Helping them out with finance is one area that parents will often support their children. This could be through teaching them how to handle their money well, lending them money or even giving them money. Some parents may even wish that they could help their children even more than they are able to. There are lots of things that they could try and they may consider helping them out with a guarantor loan.
What is a guarantor loan?
A guarantor loan is a special type of loan where someone with a poor credit report is able to borrow a significant chunk of money. They will be able to get a nice sum which they could use perhaps for a car, course or other purchase and they will repay it in instalments. It opens up borrowing options which might not normally be available to those with a poor credit record. They will need to find a guarantor who will cover the repayments if they miss any. This means finding someone with a good credit record who is happy and well-off enough to be able to cover those repayments as often as is necessary.
What could it help with?
A guarantor loan is something which can be helpful for lots of things. As you can borrow quite a large sum of money it could be enough to buy a vehicle, pay for a really nice holiday, go towards a deposit on a property or things like that. The amount can allow life changing things to be done, which will certainly have an impact. The lenders do not specify what sorts of things the money needs to go towards and so you can pick anything that you wish. However, you might or might not think that loans should go towards certain things. Some people might feel that they have to go towards things that will help you to better yourself, such as education or buying a house, but others may feel that there is nothing wrong with borrowing lots of money so that you are able to have more fun in your life.
Is it a good way to help a child?
If a parent would love to help their child financially but does not have cash to help them then this can be an alternative way that they could do so. It will mean that they will be able to get some extra money without having to earn it and they will be able to buy themselves what they need or want. They will then not have to overly worry about the repayments because their parent will pay for those if necessary. If, as a parent, you are confident that you will be able to afford to do this then you might think that it is a kind thing to do as it will mean that they will be able to buy the things that they need. It is wise to be sure that the child has every intention of making the repayments themselves though. If there is a chance that they may not bother because they know that the parent will pay instead then the parent may as well just give them the money each month and forget about the whole loan! Most children would not have this attitude though.
Is encouraging borrowing good?
Some people might just think that it is not a good idea to encourage their child to borrow. However, there are different types of borrowing, good and bad and discouraging all borrowing can actually be a bad thing for your child. If you teach them that they should never borrow then they will not be able to buy their own home, go to university or get a business loan. If they want to own a home, study at university or run a successful business then it might be necessary to do this. In fact, you might not be able to better yourself financially without borrowing money. Therefore, you could argue that it is good to encourage your child to borrow. However, it is equally important to teach them have to be wise and frugal with money and how to pick the most appropriate financial products; including loans. So, the best thing financially you can do for your child is actually to teach them about finance and how to use it to their advantage. Then you and them together should be able to carefully decide whether the guarantor loan is a good idea for them based on what they want the money for, what their financial situation is like and whether they can afford the repayments. Discussing things carefully should allow you to both come up with a well informed and balanced decision on the matter.