Applying for a consolidation loan

Pauper_Princess

Hello,

My sis-in-law wants me to help her apply for a consolidation loan. So far she has:

Bank overdraft (don't know any figures yet)
Car loan with her bank
Finance for a PC

and she wants to take out a loan to pay the lot off.

Now, while I don't really agree with consolidation loans, I want to help her (can't lend her any money unfortunately).

If I help her fill in an application, what should we put for "reason for loan"? Is it okay to say you want to consolidate existing debts or is this frowned on?

If anyone can help I'd be grateful

Mc4ndy

Consolidation loans are generally regarding as nastly little things in these forums!. If you find out the amounts involved and interest rates for the car loan, pc finance and overdraft people may be better able to advise alternatives.

In answer to your question the reason won't really matter IMO, it'll go on credit rating.

"and she wants to take out a loan to pay the lot off"

I think this is a misconception, it's just moving it somewhere else.

Pauper_Princess

I don't really know what to do - my OH very kindly volunteered me to do this last night and told me this morning

The thing is I really, really don't agree with doing things like this. I mean, she lives at home and pays a small board but other than that and her car she has no other outgoings (apart from going out drinking and buying clothes etc which young girls do these days :rolleyes2 )

I think I'm going to tell her what I'd do, ie pay off the highest interest first (I can always point her in the direction of the snowball calculator) and just keep throwing any spare bits of cash she can get her hands on to pay these debts. But she won't like that... I think she's falling into the typical thinking of "oh, I'll just get another loan".

I can't advise her on this. There. Problem solved! I get volunteered for stuff like this as I'm the "financial" one (obviously. That's why I'm up to my eyeballs in debt too then). But this just goes against everything I believe in. I'll just have to be tough and tell her to ask someone else if she's not happy with my suggestions (she won't be).

I hate being put in situations like this!!

kevin_M

Consolidation loans can be Good but at sometimes bad as well

whats to stop her after getting the loan.. few weeks later thinking OH i wanna buy this i will just use £20 of my overdraft it will be paid once my pay goes into bank etc.. I seen that happen so many times on this forum

BUT if you get her to close the overdraft down and not get any more lending it can be a good thing

best to check is what the APR is on the car loan, bank overdraft etc, what the settlement figures are on the car and pc,

Then finding out what loan at what APR you can get. as its a waste of time if the Consolidation loans saves you £20 a month but costs you a extra few grand over the term. But if its going to save you money on intrest its worth it.

But realy have to look at your sisters spending making sure she can afford this all without overspending in the future. because you realy dont want to get a Consolidation loan to pay off the Consolidation loan + extras in say a few months to a year later. Just head over to the Debt Free wannabe Board 2/3s of the people on there did that.

Hope it helps

Kev

mrcow

It all depends on the current situation with her existing debts and her income etc.

What kind of loan would she be looking for? What sotrt of APR could she realistically get?

She needs to show you what the terms are on her current debts in terms of APR and outstanding balances along and she also needs to have confirmed any settlement figures. (Settlement figures on finance in themselves can sometimes negate any positive effect that an APR drop on a refinance could produce as often there may be penalties thrown in).

If you are happy to sit down with her over this, then it's very kind of you and it's worth spending some quality time going through and working out what the best options could be.

Mc4ndy

I know what you mean about being volunteerd for stuff, I get it all the time.. Know a bit about anything and all of a sudden I'm round at people houses setting up their wi-fi, removing 10,000 virus' and spyware from their pc sorting out their banking logins, or paypal / ebay problems.. All for free. :mad: Still, I'm always trying to get friends of friends etc to come and sort out any electric / plumbing needs I have so I guess it levels itself out...

In summary Consolidation loans are a good idea if:
You reduce the overall % APR and don't increase the term period.
You don't then borrow more on the overdraft cards etc thinking it's sorted.

They are a bad idea if:
You end up paying a higher APR then before
You get a lower APR but a longer term and therefore pay more back than if you hadn't taken the loan.
You get the loan and then create further debt aside from the consolidation loan.
You secure the loan on property etc when previously it was unsecured.

Give the advice, she can then choose to take it or ignore it! I think the snowball calculator is the best idea, if you can show her that and possible how it works then she can see the bottom line figure, which is how much it costs you in total in interest, the only really important number.

With few outgoings she should be looking to reduce the APR and also the term, ie pay more back IMO

You have to check that the PC finance and car loan can be paid off early without penalty also, otherwise that needs taking into account.

Pauper_Princess

Thanks everyone for some sound advice

The first thing I'll have to get her to do anyway is find the agreements for the car and the computer and details of her overdraft. After that I can bung everything into the snowball and show her what her current state is, before we look at anything else.

The hard part will be getting her to accept that she can't extend her borrowing period - I know for a FACT she'll want to do that

Mc4ndy - you're spot on, the best I can do is show her her options and then let her decide :eek: though I wish she wouldn't!! I was horrified when I found out she was still paying for the computer - it's 2 years old!!! Sounds like she signed up for a FOUR YEAR deal on the finance :eek:

kevin_M - hehe - you don't need to tell me about the DFW board (nudges siggie) - I practically live there these days!!!

Thank you all :T