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If you have come to the point where you have borrowed so much money from so many lenders that paying them back is becoming hard to do, it might be worth your while to consider debt consolidation. This is where you take out a personal loan that covers the total of all the money you owe, you pay all your existing debts back, and you are left with only one single debt to pay back every month.
Combining Your Debts
Technically, you are not getting rid of your debt. What you’re doing is combining them altogether into one single debt so instead of having to make different payments to different lenders every month, you’ll one have to make a single payment. This gets rid of the interest rates attached to each debt as well so, there is a very good chance that you’ll save considerably in the process. With only a single debt to tackle head on, you’ll only have to deal with a single interest rate as well.
Aside from potential savings, debt consolidations make it easier to manage your finances. You’ll have one due date and one payment to make every month. Staying up to date with your financial obligations will be easier.
Getting Approved for a Consolidation Loan
If you want to take out a personal loan to consolidate your debt, know that qualifying for one is not always easy. Generally, lenders will want to work with borrowers that have a good credit score. Considering how you have reached the point where you have borrowed beyond your means and are now having a hard time paying it back, your credit score will definitely have suffered. Getting approved for a consolidation loan and getting one with good interest rates attached will be tough.
You can offer security when taking out a consolidation loan so lenders will look at you at a more forgiving light. They may be willing to assist you if you can provide them with a means to recover their money back if you ever have a hard time keeping up with the payments in the future.
Although unsecured loan, a guarantor loan will require security against the loan but instead of collateral, it will be another person who will guarantee the loan. This means that the “guarantor” will handle the loan on your behalf in case you stopped repaying for it.
Basically, the guarantor acts as a sponsor and backs up the loan in a sense that he/she will pay the loan back (plus the fees accumulated) if the principal borrower can’t. Therefore, it’s necessary for the lender to determine the creditworthiness of the guarantor, too, before approving the loan. While the borrower may have poor credit, it’s crucial for the guarantor to have an excellent credit remark to be approved.
Does Guarantor Loan Works Like A Joint Loan?
While a guarantor obviously shares the liability for repaying the loan, it’s different from a joint loan. As long as the borrower is consistent with the repayments, the loan provider will not contact the guarantor. However, if the debtor has skipped more than one or two repayments, it will be considered as a default and the lender will reach the guarantor for the loan repayments.
In case the guarantor fails to repay the debt himself, his credit remark may drastically decrease, too. In some cases, he/she can even have a court order against him/her. Therefore, before accepting this responsibility, the loan borrower and the guarantor should know how the loan works and the risks associated with their roles.
Why Do You Need A Guarantor?
When you’re struggling to get an advance, perhaps because of a poor credit rating or no credit history at all, a guarantor can help you. Guarantor loans are flexible and you can use it on almost anything. It can be offered on a small or large amount and can be settled over a short or long repayment term. The best part is: it is more affordable compared to other unsecured accounts.