Saying loan is for one thing, then doing another

welf_man

A colleague at work told me today that he plans to apply for an unsecured personal loan, say it is for a car, but use it for consolidation. He says that at some point in the next year he will be getting a new car, by selling the current one and making up any difference with a car loan through the dealer - using some of the savings from having paid off the high-interest CCs with a lower-interest loan.

My first thought was that he shouldn't knowingly state it's for one thing when it isn't, as it could be seen as fraud, but as lots of personal loan companies say you can "use it for anything", is it? When he mentioned some of his interest rates, and how long it will take him to pay off the cards, it actually made a lot of sense - if it's legal!

Thoughts, anyone?

Mel.

LeeSouthEast

Different risk profiles are used depending on the purpose of the loan. This will affect acceptance, APR's and so forth. If the loan company ask, then not using it for the purpose it was obtained I would imagine makes you fall foul of S.2 of The Fraud Act 2006 at a minimum.

olly300

While it's not legal if he keeps up the repayments he won't have a problem. Only if there are issues i.e. he stops paying, even when the loan is nearly paid off could the lender use criminal law.

Oh and he shouldn't presume he can get a car loan of the dealer if he has lots of debt as he still needs to be credit checked.

damoandclaire

how true is this?

I simply ask because on the loan applications I have done, when choosing the reason for the loan in big bold letters i've been told that it will not affect the outcome of the application. But given what some comments on here have said, it DOES actually affec the outcome?!?

Also, surely if the loan is "Unsecured", the loan can be used for any purpose, especially if the lender advertises the above?

MarkyMarkD

It's irrelevant if it's secured, or if the lender says the purpose of the loan does not affect the decision.

It's still fraudulent to state that the purpose is one thing, if it's another.

If indeed the lender says that it's irrelevant what it's for, then why lie?

dollymouse_2

If your friend is using the money for consolidation it would prob be in their best interests to state that on the application. When credit checked it will pick up any other credit outstanding which will be taken into account on the affordability calculation, but if they say it is for consolidation and that the other debts are being paid off it will give a more accurate picture of their circumstances.
Rather than applying for a car loan of x amount on top of the existing debts they will just have one loan for consolidation with one monthly installment.
hope this makes sense??!

dollymouse x

welf_man

Thanks, everyone. I really can't decide what I believe on this!

If the stated purpose isn't taken into account, why do they even ask? Is stating "consolidation" an indication you are having difficulties with curent payments and therefore looked at more rigorously? How would they even know if you have or haven't bought a car, or done whatever it was you said you were going to do? I've had a pesonal loan for a new kitchen and no evidence was ever requested.

I've always thought the situation was as LeeSouthEast said, in which case such a fraud seems rather more fraudulent!

Mel.

Jo_R_2

The loan I am repaying was for consolidation purposes, and the loan company actually asked for a list of companies that I wanted to repay and the amounts owed. I don't know what they did with this but they certainly were very thorough in checking details.

ILW

You may actually have a better chance of getting the loan if you say it is for consolidation purposes.
Otherwise the loan company will look at all your outstanding debt and assume that you are going to have even more if they grant you further credit. This will probably take you over and above any total lending criteria.

fozmcfc

I agree with ILW, when I applied for my last loan with Natwest over the phone, they said if it to consolidate other cards and loans I would be accepted definately in principal, particularly as part of the loan was to cover what I still owed on my loan with Natwest.

I needed to be honest and tell them how much I owed, so it could be worked out how much I really needed, as she said if I applied for more than I really needed, it could affect the decision.

I think that's sensible, cause otherwise I know I would have been tempted to take out more than I needed to and had I applied for say £10000 instead of £7500 it might have pushed it beyond what I could be considered to afford.

iolanthe07

There was a time when lenders got very huffy about the loan they granted not being used for the purpose stated on the application, but these days they don't seem to care as long as it is paid back.