Is a Guarantor Loan Good or Bad Debt?

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Sometimes debts can be split into the category of good or bad. This is because some borrowing can be almost necessary for us to be able to improve ourselves. For example, most people that own homes would not have been able to do so without borrowing the money. However, some borrowing will buy unnecessary items at huge expense. It is not just the purpose of the borrowing that is important but the type of loan and the cost of the loan. It is wise to think about whether any borrowing that you want to do is good or bad debt.

The purpose of the borrowing

Think about why you need the guarantor loan before you do anything else. If it is for an emergency, to pay something you cannot go without or to buy something which will better your future then you could think of it as good debt. Especially if the loan is only for the short term. The problem with trying to decide if something is good or bad debt is that it is not always easy. Therefore, be certain circumstances which you cannot predict that if they go one way make it good loan but if they go the other way make it a bad loan. For example, if you want to buy a car which is necessary for a certain job then using a loan to buy it could be considered to be good debt. However, if you do not probably check the car before you buy it and it keeps needing repair or stops working altogether then tis would be considered a bad loan. You will not have known when buying that car that it was going to do this but you should weigh up the risks. In this case, if you buy the car from a dealer then you will be able to go back to them if it is problematic as you should have a warranty and this will reduce the risk and make the loan more likely to be good debt.

The cost of the loan

It is also necessary to look at the cost of the loan. You want to make sure that the loan gives you good value for money. This can be tricky when you may not be sure how to compare loans well. However, if you look at the APR figures you should be able to calculate the total cost of the loan which will help you. It is wise to also find out how much the repayments will be. This will allow you to calculate whether you will be able to afford those repayments. This is so important as your ability to repay will determine whether this is a good loan, that is affordable or a bad loan which is not. Miss payments also cost money so you will end up paying more money for the loan if you miss any repayments.  Choosing the right type of loan, comparing lenders and using the one that offers the best value for money and checking that you can afford the repayments are all really important features and a good loan will be affordable and good value for money.

So, you can see that it is not that easy to decide whether a loan is good or bad debt. A guarantor loan can be one of the more expensive types of loan. However, if you have a poor credit record then it could be one of only a few options available to you. This means that you could find that for you it might be good debt. You would obviously need think about why you needed the money and whether that was a good reason and compare the guarantor loans to see which would give you the best value for money. Although repayment can be covered by a guarantor in this type of loan, it is still wise to make sure that you feel you can make the repayments as the guarantor is only supposed to be there as an emergency back up. As each of us is different and in different circumstances it will up to the individual to judge whether they feel they are taking out a good or bad loan. This is not always easy and it can be wise to see if you get help with this decision. Asking someone close to you to talk it over with you can help. They will not be so emotionally attached to your decision to borrow and so may be able to look at things from a different point of view that could be helpful for you. It is worth spending this time thinking and deciding. You might be impatient to get the money but if you rush the decision you could regret it but there may be no going back once you have spent the money that you have borrowed.

Should I Pay off my Debts to Improve my Credit Score?

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If you are looking for a loan, such as a mortgage or credit card, then the lender will do a credit check. If they feel that your credit record is not good enough then they will not lend to you. This means that it is important to make sure that your credit score is the best that it can be. Firstly, you should check what is on it. You can do this for free and it will not should on your credit record that you have checked it. Make sure that all of the information is correct. If it is not then it is important that you get it changed. If it is then you can see what you can do to improve it.

Improving your credit score

Improving your credit score can be quite tricky. Firstly, lenders have different criteria when deciding how to decide who to lend money to. They do not all look for the same things in a credit record. This means that it is impossible to have the perfect credit record. However, you can apply some common-sense principles. For example, if you have a lot of unpaid debts then this might reflect badly as lenders may see you as more of a risk. Therefore, it could be wise to reduce your debts. However, owning a credit card that you repay in full each month, would perhaps not matter as it shows that you are capable of making repayments and the fact that you are repaying in full, on time, will show that you are responsible. However, if you have ongoing debts like an overdraft or you are behind in loan repayments then you need to address this or else it will not be looked favourably on by potential lenders.

Reducing debts

It is therefore good to take a look at what types of loans you have and which you should consider reducing. An overdraft is probably one of the most expensive ways to borrow and so could be a good one to start with. Perhaps unpaid credit cards could also be a good place to try to reduce your debt. If you have long term personal loans, then repaying them could be harder as you may have borrowed a significant sum of money. If you can ensure that you make the repayment on time and in full then this will be helpful.

Of course, working out which debt to repay and in what order is one thing, but you then need to find the money to do so. This can be difficult, especially if you have lots of debt and the expense on interest payments on it all. However, it can be a great relief to get your finances in order and repay some debts. Therefore, it could be wise to prioritise things and try to concentrate on the debts rather than spending money on other things. It could be worth making sure that you only spend money on the essentials for a while and that you use any spare money to repay your debts. You may need to consider others ways of earning money if you want to make a significant impact. This could mean that you might need to consider changing to a better paid job or working a second job to earn more. You may be able to do extra hours in your current job or you may need to find other work, perhaps freelance work or online work to earn more. Once you start earning more and spending less you should be able to reduce your debts.

Once you start paying off debts you should find that your credit record will improve and it will make it easier to borrow. However, you might want to be more wary about your borrowing. Keep in mind how much hard work it was to repay the debt and that will allow you to be able to decide whether you want to take on more debt when it could be as hard, if not harder to repay it. It can be wise to work out if the debt is good or bad debt and this should help you. If it is good debt, such as using a mortgage to buy a home, then this could be worthwhile as you will save a lot of money in the future on rent. However, if it is bad debt, such as borrowing to buy luxuries that will not last, then consider whether all the work to repay the loan will be worth it. If you do decide to go for a loan make sure that it is the right one for the job, that you only borrow the bare minimum and that you compare lenders so that you take the loan that will give you the best value for money.