Guarantor Loans – Structured and Controlled
In days gone by, debt was something we strived to be free of, however, in recent years debt has become an integral part of modern society as we know it. From the pay monthly mobile phone contracts we sign ourselves up for to the sofas from the local discount furniture store we sit on. We all exist being supported by a world of credit that allows us to purchase goods and services without which many of us would not have been able to afford some of the important purchases we make.
As mentioned above, the aim is always to work towards becoming debt free, but it’s not always realistic if we wish to continue operating in a world filled with expensive cutting edge technology and a foundation of internet based services. So with the understanding that unless we make sacrifices such as giving up costly material possessions such as gym memberships, evenings out or big TVs, most of us will never be completely debt free. It is essential to ensure you control the debt you agree to take on.
Borrowing on Credit Cards
Credit cards are a great example of a debt that needs to be controlled. In many cases you start out with the best of intentions, to spend only what you have to on the credit card with the intention to pay it all off when pay day arrives. However, we let it slip for a month or two, and then add a couple more purchases to the balance.† Before you know it, the balance has grown and the interest repayments alone start to become unmanageable. What started out as a controlled and manageable debt then becomes out of control and can start negatively affecting your finances.
Mortgages or Home Loans
Mortgages are a form of controlled debt without which many people would never be able to own their own home. It is a far longer term form of debt than borrowing on a credit card, and in most cases continues for decades. The obvious difference between a mortgage and borrowing on a credit card is the fact that mortgages are entered into with a defined structure for repayment and a clear completion date. As with all debt there is always a chance that a mortgage has the potential to become an uncontrolled debt if repayments are not kept up to date, but provided it is managed properly a mortgage can be hugely beneficial.
Borrowing from the bank
Bank loans are another good example of a controlled or structured debt. They generally have a lower interest rate than other types of loan, and have fixed repayments agreed over a period of years rather than decades or weeks. One of the main issues with bank loans is ensuring you have a healthy enough credit rating to be eligible in the first place. To achieve a good credit rating you will need to have had a previous credit history, so if you have never had a loan or credit card in the past, you may have trouble gaining the bank’s approval. In a sense, you are stuck in a loop of never having had credit, and therefore not being able to get it.
Guarantor loans are another form of structured debt that is an option for those who cannot take the bank loan option. They are a mid-term type of loan with repayment periods of between one and five years. The amounts vary but can be anywhere between £1000 and £7500 and come with a higher interest rate than a personal bank loan, although with a guarantor loan you do not necessarily need to have a healthy credit rating yourself. However, you will need someone who does have a healthy credit rating to act as your guarantor. By acting as your guarantor they are stating that they trust you to make the repayments for the loan, and if the worst happens, leaving you unable to make the repayments, the guarantor will step in and make the repayments on your behalf.
Guarantor loans, like mortgages and bank loans are a structured form of debt. Affordability checks and a set repayment schedule are made clear from the outset to both the applicant and the chosen guarantor. They are an avenue for those with a poor credit rating to access larger sums of money when they have been turned down by the mainstream lenders. Guarantor loans provide a way for those without a previous credit history to start achieving one. They also increase the chances of being approved for future unsecured personal loans, without the continued assistance of a guarantor.
Debt is something that has worked its way in to our lives in many ways and on a number of levels. Perhaps we need to think twice before making any unnecessary purchases a little more. However, if there is no alternative, and provided the debt is structured and controlled, it can be used effectively to help us achieve far more than we could have without it.
If you would like to find out if you are eligible for a guarantor loan then simply complete our online application, or call to speak to one of our representatives for more information.