How a Guarantor Loan Can Help to Reduce the Worry of Debt

Mounting debt and an associated poor credit rating can prove to be very difficult for many people. Getting it into positive financial territory again once it is considered bad can be even more difficult. Whether you have a moderate amount of debt or a more significant sum, the constant stress and strain of worrying about your monthly outgoings can make your life utterly miserable.

Conviction to Improve your Situation

What then can be done to try and help remove some of this stress and strain from your life? First and most important, a strong conviction to try and move away from these troubled waters is essential. It may not be easy but bringing yourself out of debt is absolutely achievable. Options such as debt management and debt consolidation programs can both prove to be ideal for particular circumstances but one option can stand out above the rest due to its ability to both help reduce debt whilst at the same time working to improve your credit rating. This option is known as a guarantor loan.

Generally speaking when applying for credit, the chosen lender will review the applicant’s credit score and history to determine whether or not they can lend you money. The score will also determine the interest rates that they offer you if your loan is approved. When applying for a guarantor loan, this is not the case. This type of loan requires a third party to be involved who will guarantee to pick up the payments should the borrower fail to do so. The guarantor can be anyone the borrower asks so long as they are not currently financial dependent on the borrower but are typically a close friend or family member (not a spouse or partner, however).

Guarantor Loan Requirements

The standard requirement for a person who would like to be a guarantor is possession of a good credit rating, receipt of a regular income and they will also generally be expected to be a homeowner. It is important to note that the guarantor will only be expected to become involved should the borrower fail to keep up with the repayment schedule. If repayments are made on time, they will stay very much in the background.

Once the loan has been granted, the benefits offered are twofold. First, because guarantor loans are personal loans, they are absolutely ideal for debt consolidation. By using the balance to pay off outstanding credit/store card bills and maybe even other smaller loans, you will be able to reduce the amount of debit interest being accrued each month while ensuring that you only have to make one monthly payment to start reducing your debt. Second, because you will be demonstrating the ability to maintain a regular repayment schedule, this can help you take significant strides towards improving your credit rating. Both of these factors can be crucial in ensuring that you bring your debt back under control and therefore helping to reduce your worries at the same time.

About the Author:

Amanda Gillam works as blog writer for a finance company called Solution Loans which specializes in Guarantor Loans. She holds a degree in financial management and enjoys writing about a variety of topics including finance, transport, travel, sport and business.
Editor’s Note:

Adding a guarantor on to a loan application can help get your loan approved but is no guarantee that it will be. This is because the guarantor becomes part of the loan application, so their credit rating is evaluated along with the primary applicants. A guarantor is not a co-applicant and is only relied upon if the applicant defaults so their credit ratings are not combined but simply used in succession. So, if the lending institution believes that the guarantor is of equal unreliability as the primary applicant and cannot make good on the debt if the primary applicant defaults on the loan, it will be of no help.

Risks of Being a Guarantor

The English Standard Version of the Bible states Proverbs 11:15 this way:

“Whoever puts up security for a stranger will surely suffer harm, but he who hates striking hands in pledge is secure.”

This is specifically talking about guaranteeing someone’s loan. So even back in King Solomon’s time this was a common practice. But Solomon’s advice is not to do it! At least not for a stranger. In those days, striking hands was the same as signing on the dotted line.

Before you agree to guarantee someone’s loan you need to know them pretty well. You should evaluate their credit, income and expenses just as a bank would. You aren’t doing them (or yourself) any favors by helping them get into a debt situation that they ultimately won’t be able to pay. If you guarantee a loan you must be prepared to repay the entire amount if borrower fails to do so. This is a serious undertaking, it is not simply signing your name and that is the end of it. Before you become a guarantor you should get a copy of the loan contract and be sure you understand it before signing it. Know what you are committing to; once you have signed the contract, it is binding and there is no way for you to get out of it.

Unless you are willing to repay the loan, the only acceptable reason to sign as a guarantor is to aid the borrower in getting a lower interest rate not to help them get a loan they can’t afford. Both you and the bank should be sure that the borrower is qualified to repay the loan but if your credit rating will assist in reducing the interest rate and you know the person well and fully trust the borrower to repay the loan you might consider helping them in this way. On the other hand, in some situations parents might be able to act as the bank for their children. See: Is Financing Your Child’s Mortgage Right for Your Family?

Conviction to Improve your Situation

Guarantor Loan Requirements

Risks of Being a Guarantor

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