What are the basic facts about the debt agreement that every borrower need to know?
A debt agreement is one of the ways for the creditor to recoup some of their losses when the debtor is not able to pay them back in full and when it is difficult to collect on the debtor’s outstanding loan. The creditor and the debtor put new payment terms in writing, to allow the debtors to at least make partial repayments.
When to Enter a Debt Settlement Agreement?
Why do creditors settle for debt agreement? By entering into an agreement, the creditors no longer have to waste time in chasing you down. Instead, both of you reach an agreement on how much you can pay them.
Contents of a Debt Settlement
The agreement contains the following:
- How you will make payment
- A statement that in case you fail to make timely payment, the total amount you owe becomes due.
- The date by which payment should be made
- The new debt settlement amount you agree to pay
- The original amount you owed
- You can also add other terms such as liability clauses and other things both of you would like to include.
Why do banks frown upon applications from borrowers who are in debt agreements?
Major banks are very cautious when lending money to someone who has a bad credit history. They don’t want to put the company at risk in approving a loan for a borrower who cannot make timely payments.
Can I refinance a loan when I am still bound by a debt agreement?
Specialist lenders like Australian Lending Centre provide debt relief and no credit check personal loansto borrowers like you who are still in a debt agreement to refinance your current mortgage so you can pay your agreement in full. If you have been in agreement for a year, but you made updated repayments, you might be able to borrow up to 70-80% of the value of your property. However, it is important to arrange for a pre-qualifying assessment to ensure that you have a realistic calculation of your home equity.
Benefits of Entering a Debt Agreement
If you have limited financial resources and your situation does not allow you to pay back your debts in full, you can enter into this agreement. By doing so, you can avoid going bankrupt—which would result in a bad credit rating. It also helps you overcome difficult financial situations, by giving you some extra money to settle your debts and to pay for your immediate needs.
Debt Agreements are appropriate for applicants who are at the verge of bankruptcy. It can help you avoid the major consequences like having a bad credit score that could result in countless rejections of credit applications. Bankruptcy must always be the last option. So, one of the effective alternatives a struggling borrower should consider is a debt agreement.
Alternative to Debt Settlement
If you don’t want your future creditors to know that you are struggling financially, try debt consolidation. This is also known as second chance loans. It can help you negotiate a payment arrangement with your creditors and it is definitely a practical alternative to bankruptcy.
Final thoughts
A debt agreement is a contract driven by the desire of both parties to settle the debts. The lender wants to get back the money while the debtor wants to pay it off.
