Consolidation Loans for Bad Credit
In the current climate more and more people are being affected by growing debts. With inflation eating into people’s pay packets and pay freezes in place across many work places it is becoming more difficult than ever before to keep up with repayments on various financial products.
Often, individuals that have a bad credit report can find it difficult to be granted financial products, such as a mortgage, credit card or loan, as some banks may not feel the borrower is going to be able to make the repayment deadlines.
While some people are fortunate to escape times of financial difficulty with the support from family, others are unable to make one or a number of repayments. This is then recorded negatively on the borrower’s credit report.
Consolidation loan options
Consolidation loans replace a number of different loans with just the one loan. Typically a consolidation loan will be borrowed for a longer repayment period because this will reduce the monthly repayment costs in most instances.
Individuals who have already got a bad credit history need to discover ways to make repaying their debts easier and less stressful. Rolling all their debts up into a single loan is one way of doing this. This is known as a consolidation loan.
There are a number of reasons why people may choose to consolidate their outstanding debts. If you have bad credit it is still possible to get a consolidation loan. For example, by adding together your outstanding car loan and your store card and credit card balances, you can roll these into a a consolidation loan and pay off the balances with the loan and then make just one monthly repayment which can be spread out over a longer term to make things a little easier.
If you are sure you want to consolidate your loans into one payment, you should shop around for a competitive rate. Your options are a secured loan, if you are a homeowner, or an unsecured personal loan.
You will only have the option of a secured loan if you already own a property and have a mortgage on this. Secured lenders will look at the remaining equity you have in your house (how much the house is worth minus the outstanding mortgage balance) when deciding whether to offer a loan. This is known as LTV, or loan to value. Typically you will need a minimum of 85% LTV to be considered for a secured loan. While a secured loan can offer larger balances over a longer repayment term, bear in mind that these loans are secured against your property so if you get into difficulties, you home may be at risk.
For tenants and people with bad credit, it is better for them to consider a normal unsecured personal loan. If you decide to take a consolidation loan, it is important that you do not run up your credit and store card balances again until you have paid off the consolidation loan. Some customers even decide to destroy their cards after taking consolidation loan so that they avoid using these cards while they are clearing the balances.
If you decide not to consolidate your loans and pay off each debt individually, here are some tips on how to do this:
Prioritise your responsibilities. For example, meeting repayments on essential services such as your mortgage and utility bills should be your first concern.
Pay off the most expensive debt first. If you have more than one credit card and/or store cards, you should pay off those with the highest rate of interest first.
If you get into difficulty, be sure to talk to your creditors as soon as any problems arise. Do not stick your head in the sand and hope that the problem will go away. Despite what you may think, most companies are sympathetic to people who cannot afford repayments and look to find a solution that works for you.