Real-life MMD: Should I act as guarantor for oldest friend's son?

Former_MSE_Debs Posts: 890 Forumite
edited 3 December 2013 at 5:35PM in MoneySaving polls
Money Moral Dilemma: Should I act as guarantor for oldest friend's son?

A very good friend lost his job a year ago, but has since got a job and has an IVA in place. His son now wants to start a business. He's been turned down for a business loan of £5k and can't get a personal loan without a guarantor. My friend can't stand as guarantor as his assets are in the IVA, so he's asked if I will. He's suggested drawing up a contract to guarantee that he'll pay us if his son defaults. I'm not convinced his son has the business acumen to make a go of it, but this is one of my oldest friends asking for help. Should I do it?

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  • Cabbagewhite
    Short answer: no. Unless you can afford to give him £5000 plus the interest and charges without batting an eyelid, no. As your friend is in an IVA he can't sign any meaningful legal agreement with you (I stand to be corrected on that as my IVA/BY knowledge is from over 10 years ago). If the son can't get a loan from a mainstream lender, there is usually a good reason for it.

    If you are worried about your friendship, then I would suggest a white lie. Something along the lines of you have had to lend some relative a similar amount for some domestic emergency and haven't got any spare cash as a result. If he is a good friend, then preserving the status quo is important. He may well be expecting you to say no anyway.
  • kazwookie
    kazwookie Posts: 13,869 Forumite
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    No steer well clear.
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  • sleepymans
    If you can afford to GIVE (without any hope of seeing the money again) then you should consider saying "Yes" but if you ant afford a big loss then you have to say "No".
    Remember the £5k will attract interest (do you know at what rate??) and therefore your potential loss would not be limited to the £5k.

    Its a BG ask and few people would be in a position to agree to it.
    :A Goddess :A
  • dd23
    dd23 Posts: 5 Forumite
    First Anniversary Combo Breaker
    I have worked for one of the Major banks. I have Mortgage, Loans & Arrears handling experience. It's a definite NO from me. Hope that helps.
  • pjsmiffy
    pjsmiffy Posts: 61 Forumite
    Run a mile from this one.

    If you wouldn't lend him the money yourself don't go near it.

    As stated above you should consider the money as lost if you did. Assuming the worst what would your relationship with your friend be.

    The excuse of no cash or money tied up may not work as they may just want an asset to secure the loan against (Your home?)

    Perhaps (And about the limit of what I would /could do for a blood relative) you could suggest you look into going into partnership with the son this would give you more control.

    About all I would act guarantor is a flat rental for someone I would have living in my home.
  • Macca83_2
    Macca83_2 Posts: 1,215 Forumite
    No definitely not, if the lad can't get a loan off his own back then there's definitely a good reason why he's been turned down.

    Those guarantor loans usually have horrendous interest rates and loan default charges. You'd probably be looking at closer to £9000 if you ended up having to pay it back.
  • pjsmiffy
    A quick look shows that a £5000 guarantor backed loan is about 41.16% from a company that advertises on TV. Given I can get a Loan of a at least £1500 @13% without trying and Bank of England base rate is 0.5% I want to know what they are doing for there money.

    Unpaid £5000 becomes £7056 unpaid in a year (using 41.16% interest)
  • thebaroness
    No, absolutely not and your friend should be ashamed for asking.
  • whitewing
    whitewing Posts: 11,852 Forumite
    First Post First Anniversary Combo Breaker
    No no no no
    :heartsmil When you find people who not only tolerate your quirks but celebrate them with glad cries of "Me too!" be sure to cherish them. Because these weirdos are your true family.
  • catmc
    catmc Posts: 136 Forumite
    no from me it will ruin your friendship if the money isnt paid back
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