Are Guarantor Loans an Effective Debt Management Strategy

Mounting financial pressures mean that many people are today facing a situation which requires a sound financial strategy to survive. Fortunately, lenders are coming forward with some inventive ways which have been designed to allow their customers to implement effective debt management strategies in order to bring their finances back under control.

If you find that you have many different lines of credit, all of which have their Are Guarantor Loans an effective debt management strategy?own debit interest being accrued, it is widely accepted that consolidating these debts into one single payment can help to make your debt more manageable. The repayment schedule for this type of debt management strategy can be set up to be longer than your existing loans and can also offer lower interest rates.

One of the most ways of implementing this strategy can be by applying for a guarantor loan.

Guarantor Loans

Guarantor Loans are unsecured loans which utilise the benefits of a guarantor. The person who acts as the loan’s guarantor will co-sign the borrower’s loan agreement and therefore lower the risk for the lender.

The guarantor, who is typically a family member or close friend (but cannot be someone on whom either you or they are already financially dependant on), undertakes an agreement to repay the loan if the borrower cannot make the repayments on time. This makes the loan agreement far more favourable for the lender and therefore significantly increases the chances of the application being granted.

In terms of eligibility, the majority of lenders will expect the guarantor to own their own property or have substantial savings, have an excellent credit history and have a regular income of their own. The guarantor should be in a position to cover the loan repayments without there being personal problems in doing so.

Because of the presence of the guarantor, the credit history of the applicant becomes largely irrelevant. This ensures that guarantor loans can open financial doors which are closed to many people.

For the person acting as the loan’s guarantor, they can offer a great way of helping someone obtain credit when it is desperately needed.

Improved Credit Rating

One of the most serious effects of debt and missed payments is the effect that this can have on someone’s personal credit rating.

Once a person becomes attached to a bad credit rating, it can make successfully applying for loans and credit cards etc next to impossible. However one of the most beneficial aspects of guarantor loans in relation to an effective debt management plan is its ability to improve the borrower’s credit rating. The borrower, once receiving their loan, will be able to demonstrate their ability to make regular repayments. This will help to improve their credit rating and in turn allow them to apply for future loans without the need for a guarantor.

Because of this benefit, guarantor loans may also prove to be ideal for someone who has no credit history at all. In the eyes of many financial institutions, a bad credit history and no credit history are viewed in the same way. Therefore the appropriate use of a guarantor loan can help to get people back on the right financial footing.

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