Guarantor Loans: The Secret to a Debt Free Future
Nov 11
Is mounted debt starting to get you down? With the economic climate still struggling to pull itself around there is every chance that you are in good company.
People all over the UK are fighting to keep their head above water with their finances and it does not take a huge amount to change before things start to slip.
Unexpected Bills
An unexpected bill or a minor emergency can make all the difference when things are tight and it won’t be long before debts begin to escalate to a stage where you are struggling to keep up.
Falling Behind
Nobody enjoys falling behind with their payments. The pressure begins to build and as things begin to snowball.
It won’t be long before your credit rating starts to take a hit and then a number of other problems are waiting to pile on as well.
Take Control of Your Debts
Due to some very savvy advertising, it is now more unusual for someone not to have heard of the term ‘debt consolidation’.
There are currently a number of companies advertising debt consolidation methods which can be used to make debts more manageable and easier to clear.
The nature and the size of your debt are obviously very important but if you can bring multiple debts into one place, with only one associated debit interest, then debt consolidation could be for you.
For more information on Debt Consolidation – http://en.wikipedia.org/wiki/Debt_consolidation
Hand in Hand
It is a very unfortunate fact that rising debt and a falling credit rating go hand in hand. As such, exploring loan options to help consolidate debt can often highlight the fact that the options available are limited are best.
All is not lost though as a specialist loan is currently available which ticks all of the right boxes – read on to find out more.
Specialist Loan – Sounds Interesting!
Guarantor loans are currently one of the most popular loans available on the market. They are actually one of the original types of loan but until recently have not received the publicity that they deserve.
Generally, they are available in sums of between 500 and 7500, although some lenders may offer more and use the presence of a third party who will co-sign the loan agreement to guarantee the repayments should the you fall into difficulty.
For more information on what a loan guarantor is, please see below.
Perfect for Anyone with a Bad Credit Rating
It is very rare that debt consolidation does not prove to be a good idea but where many people struggle is that falling into debt and a poor credit score will render them ineligible for a loan with most banks.
Guarantor loans are perfect to swerve this problem because the presence of the guarantor allows the lender to overlook the credit rating of the borrower.
Alternative to Bank of Mum & Dad
Because of the nature of guarantor loans, popular choices for the role of the guarantor are family members and friends.
Although the loan and repayments will remain in the name of the borrower, the ultimate responsibility will fall on the shoulders of the guarantor so make sure you keep up with the repayments!
Check out the following article for a look inside the ‘bank of mum and dad’ – http://www.dailymail.co.uk/debate/article-2378327/68-000-bank-Mum-Dad-kids-property-market-If–George-Osbornes-reckless-Help-To-Buy-scheme-certainly-wont-help-sons.html
Reduced Repayments
By using a guarantor to obtain a loan like this and using it to pay off your other outstanding debts, there is every chance that you will pay significantly less in interest and fees overall – very much the essence of debt consolidation.
Your debt repayments will be simplified because you will only be making one repayment each month and because guarantor loans are available with fixed APR, the payment will remain constant throughout the duration of the loan allowing you to budget accordingly.
Guarantor Loans in Action
The following example offers a great insight into how guarantor loans can be used to help provide a lasting debt solution whilst at the same time improving your credit history.
David is 25 years old and was finding making repayments on his debts increasingly tough. Having spent the previous few years at university, he had fallen into the same traps that many students fall into and a couple of unpaid bills which had led to a negative footprint on his credit record.
Once he had finished his education, David was fortunate enough to find a job fairly quickly. Through the need for travelling he bought himself a car and continued with his life. As time progressed David’s found that his disposal income became less and less and when his car needed expensive repairs, he was left with a problem.
To pay for these repairs, he initially took out a payday loan for 400 which he, unfortunately, rolled over several times and he now owes over 1200. So, he’s having to look on sites like https://www.nationalpaydayrelief.com/payday-loan-consolidation/ to find a way to get rid of or reduce this debt.
Spiralling Debts
He felt as though his debts were beginning to spiral out of control and started a search to find a way to make a fresh financial start.
Due to his credit history being fairly poor, David found that when he went to his bank, he was unable to obtain a personal loan, regardless of the fact that it was for debt consolidation purposes.
He instead turned to a guarantor lender for a loan of 4000 pounds with his dad to stand as the loan guarantor. His dad’s excellent credit history and regular income made him the perfect guarantor and David was able to use the balance of the loan to pay off his payday loans, overdraft and outstanding credit card balances.
Repaying the Loan
Over the next 3 years, David will be able to repay the guarantor loan in full, with the knowledge that he will be debt free at the end – assuming he doesn’t accumulate any other debts in the mean time.
One of the major benefits of approaching debt in this manner is that because he will demonstrate his ability to pay back credit over a prolonged period of time, it will go a long way towards improving his credit history.
Situation’s similar to this are absolutely perfect for a guarantor loan, so long as the person applying for the loan is determined to evaluate their budget and make any changes necessary, then this method of consolidation can provide the best results.
For further information on how to handle problem debts, see the Which? Dealing with debt advice guide.
Credit Rating Tips
In many cases there are a number of simple things which can be done in addition to debt consolidation to help boost your credit rating to help the future.
These include:
- Close any unused cards.
- Don’t make too many credit applications in a short period of time.
- Make sure all relevant accounts are linked to the same address.
- Use a landline on applications rather than a mobile number.
- Be consistent. Keep personal info the same between applications.
- Make sure that you are registered on the electoral roll.
For advice on improving credit ratings visit the Experian website – http://www.experian.co.uk/consumer/credit-education/improve-credit-rating.html
