As a grandparent it is likely that you will feel a responsibility not only for your children but also for your grandchildren. It can be good to feel that you can help them out when they need it. It could be that physically you are not so good as you have been in the past but that you can help them in other ways such as financially. You might have money that you can give them or you may not have too much and want to keep it in case you need care but feel that perhaps you could help by being a guarantor on a loan. This is something which you may want to look into more before you do.
What is a guarantor?
A guarantor is someone that will make payments if a person is not able to. This can be for a loan, but other things too such as rent. It adds a layer of security for the lender as they know that they will get their payments, even if it means that they will have to ask someone else. Lenders will normally only need a guarantor if someone has a poor credit record. This could be due to them falling behind with loan payments in the past or it could be because they have never had any bills in their name or borrowed before so lenders have nothing to go on with regards to their creditworthiness. Unfortunately having a guarantor may not make loans any cheaper but it will make them more available to those who may otherwise have not been able to borrow any money.
How can a guarantor loan help someone else?
So this means that if a person cannot get a loan themselves due to having a poor credit rating then someone who does have a good credit rating can act as their guarantor and allow them to get a loan. Usually a person would only help someone that they knew well, such as a family member. They would want to trust them and know that they will try their hardest to pay the loan themselves and hope that they will not be called upon to pay anything. This is why it is often a parent of grandparent that is asked to act as a guarantor. They will usually be close to their child or grandchild and be happy to help them out in this way if they can.
It is worth noting that the guarantor will need to have a good credit rating themselves. This may not be the case for all parents and grandparents, particularly if they are retired or out of work or have unpaid loans themselves. . They will also need to have the money available to be able to cover all of the loan repayments should they be asked to. Although the chances of them having to make every repayment are low, it is wise for them to be prepared for this just in case as then they will know that they can afford it.
If you have multiple grandchildren then it is worth thinking about whether you could help them all out in the same way. If you cannot then you may find that there is jealousy between them because you have helped one and not the other. This is not nice in a family. It may be that only one grandchild has asked you, but that does not mean that the others will not feel left out somehow. This will particularly be the case if you end up having to cover the cost of some repayments as you will effectively be giving one grandchild money and not the others.
It may be that you would expect your grandchild to repay any money that you have to pay for them. If this is the case, make sure that you make it clear form the start and even have it written down so that you are both sure on the terms. Think about when you expect them to pay it back as well, whether you would want it as soon as possible or would be prepared to wait until the loan is paid off first or whether you might just distract it from any money, they will inherit form you. It can be complex and so you need to think it through or else you may end up falling out because you had different expectations to them.
It is hard to say whether someone should be a guarantor to their grandchild. It will very depend on their own persona circumstance. It will depend on if they have a good credit record and can afford to, to start with. But they also need to consider the rest of family and how they may feel and whether the arrangement might affect their family relationships with that grandchild as well as any other family members.