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Getting a loan with bad credit..?
Ben_Copland
Posts: 4,602 Forum Member
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I desperately need a consolidation loan! But everywhere I look, my credit rating isn't letting me. My debts are just building up and up and up. If I got a loan over 4/5 years of a couple thousand, I could pay them all off now and pay the monthly payments of £40 - £60 incredibly easily!
Is there anywhere I may be able to get a loan with my credit rating? A professional firm. Absolutely no one in my family is able to help me to the point that I'd be comfortable and I know for a fact, if I could just get a loan of a couple thousand, any worries I've had would be gone.
Any help appreciated!
Is there anywhere I may be able to get a loan with my credit rating? A professional firm. Absolutely no one in my family is able to help me to the point that I'd be comfortable and I know for a fact, if I could just get a loan of a couple thousand, any worries I've had would be gone.
Any help appreciated!
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Just getting a loan to cover the existing loans is often a bad idea even if you can get the loan. It can work but you've obviously had troubles in the past so need to be careful.
In short, no. A "professional firm" will not touch you with a bargepole as you'll be considered too much of a risk. Also a repayment plan of £40-60 is very unrealistic.
The only options open to you will most likely be "payday" loan firms who are best avoided as their APR will be more than the loan itself.
As bobcar suggested, get on to the CAB and look into some debt counselling.
1) Write to ALL those you owe money to and offer them all a reduced payment that amounts to what you can afford in total.
2) There is a scheme backed by the courts for amounts less than a certain figure. (I dont recall the amount but its thousands) This is for people that dont qualify for an IVA (individual voluntary arrangement) or bankruptcy.
This scheme is called a "debt relief order" and is explained here:https://www.gov.uk/options-for-paying-off-your-debts/debt-relief-orders
Its bound to reflect on your credit rating but from what you say thats already bad so nothing to lose.
Good luck.
Also I echo posts about having debt counseling or being educated on managing your budget. There's no point clearing what you've got only to get back in debt a few months later.
I say this as someone who has a mortgage, student loan, car loan and 3 credit cards and will probably have to get another loan to pay for a new boiler this winter
http://www.moneysavingexpert.com/loans/debt-help-plan
Some very useful pointers, as well as information on who to contact and who not to contact.
If you have debts that (over their lifetime) require you to pay £5k and you come to me for a consolidation loan I am going to require you to pay me back more than £5k. I have to. The loans you're having problems with don't magically vanish. I have to pay them. So if I'm going to have to pay your creditors £5k I'm going to need you to pay me more than that so that I can make a profit.
Even if you settle the new loan early - I still need to get back at least £5k. You might be able to reduce the final cost from £6k to £5.5k but no matter what you do you'll end up paying me more than the original £5k.
Paying off over a longer period does reduce the monthly outgoings but it also means paying a lot more in the long term; and that longer period greatly increases the risk of further default and problems. Furthermore if the underlying problem that created the debts is not addressed it is likely that further debts will be obtained making matters even more desperate.
For that reason such a loan should only be considered as part of a debt reduction plan, and not as a solution in isolation.
For the OP you clearly have issues with debt that go much deeper than can be solved by taking on more debt - the fact that you appear to believe that borrowing a "few thousand" more will solve all your debt problems is evidence of that. I urge you to seek professional assistance from your Local Authorities debt advice officer of the CAB.
Years ago I had the same problem as you and I went and saw the CAB and I can't thank them enough for the help they gave me. They helped me draw up a proper budget which covered things such as make up,clothes and even money towards socialising as well as the usual stuff like food and rent and then they worked out how much I could pay each company and then gave me letters to send to them.
Don't take out a loan to pay off your debt it's really not the answer and you have to be very confident that you won't start running up more debt.
It can be the case that taking out a new loan can have a lower interest rate than the existing loans especially if the existing loans are pay day loans at an exorbitant interest rate, that can make the total paid back lower.That does not mean I think the OP should take out another loan just that such a loan could be cheaper.
My advice remains what I said in my first reply which is to get specific advice from the CAB. The key is to change the borrowing habits.
Your maths is faulty.
There are three parties involved here:
Original creditors(*): They want £5k. Note: That isn't a £5k loan. It could be a £4k loan with £1k of charges/interest.
Debtor: Wants help.
Consolidator: Wants to make profit.
The consolidator will pay the £5k debt. They will then need to get at least £5k back from the debtor otherwise they are out of pocket.
The point of a loan consolidation is not to reduce the overall cost. The point is reduce the daily/weekly/monthly payments. That is not the same thing and if you don't understand that you should avoid borrowing money.
As a fictitious example:
Original loan(s): £50 a month for 100 months = £5k. Initial sum lent probably £4k but that's irrelevant.
Consolidated loan: £25 a month for 250 months = £6.25k.
The debtor is now paying £25 a month less than they did with the original loans but will now be paying over £1k more than they would originally. It is (with care) a sensible arrangement. That £25 a month difference could mean they have enough money to buy food and avoid taking on further debt. But they are paying for the service.
(*)This is what you seem to be overlooking. Those original creditors want paying. The absolute minimum you will get from a consolidator is a new loan for exactly that sum of money. Whatever you were going to pay those people will be paid by the consolidator. They might, possibly get a reduction if they pay off the loan early but that's not guaranteed. In any case it'd only be the same redemption figure that you yourself could get. The fact is that you still have to pay that sum of money to someone. However now you're doing it through a third party and that third party will add their own charges so that they can make a profit. It might be a 'better' deal (ie; lower interest rate) but it will still be for a larger loan.
Maybe what's confusing you is that the new interest rate applies to the old loan's redemption figure. As noted above - if you borrow £4k you will pay back more than that and it's that total that you have to borrow from the consolidator. The original creditor will not adjust their interest rate to match that of the consolidator.
The amount of debt you have taken on has increased. The new £5k loan might be at a lower rate but it's still a £5k loan not the original £4k loan.
http://voices.yahoo.com/disadvantages-debt-consolidation-loans-884557.html
and
http://budgeting.thenest.com/disadvantages-debt-consolidation-3499.html
It doesn't always work out more expensive but it often does. Fundamentally you cannot 'magic away' the original debt. Someone has to pick that tab up and they will want to make money from doing so.
Maybe this is where you're going wrong. You're assuming that the old loan(s) has a redemption figure that includes all the interest that they would have paid if they'd kept the old loans.
If the OP's loans were with pay day companies or credit cards then there is not the same redemption charges. Assuming that a new loan was attained then it's quite likely that the total amount repayable would go down compared to what they would have paid.Almost any loan other than from a shark is likely to be cheaper than a pay day loan.
The issue is not whether the new loan can be cheaper it's that this may just keep the bad habits going and of course whether anyone will lend money at a decent rate. In most cases it is better to negotiate with the existing lenders, this will affect the credit rating but maybe that's not such a bad thing.
However, if you leave it 6 months, applications drop off your file. Credit you have taken out in the past stays on your file til 6 years after the account is closed. But in your scenario, if you have had trouble paying debts, that will be on your file as a bad debt payer, so even in six months time you may find it hard to get further credit.
All you can do really is go to CAB as suggested and try and get a plan in place. Good luck.
The big problem is with payday loans on your credit file you have zero chance of getting most, if not all mainstream credit at lower interest rates.
Your theory would have higher chances of success if the debts on file were all mainstream with more normal/acceptable levels of interest rates and with a very good/excellent credit rating.
For the OP though, it won't happen as they've already said "bad credit"