Debt Consolidation - Parental Loan

RonnyB

Hi Everyone,

I am wanting to consolidate my debts. Unfortunately I am unable to get a loan to cover the approximate +£7k of debts because of my poor credit rating. I am also very much in need of a car after my engine blew this weekend!

I am on the verge of asking my parents to lend me the money via a bank loan if they would be willing.

My questions are as follows:-

1. Is this best way to arrange a loan to consolidate the debts?

2. Is there a loan I could take out personally that would see them as guarantors?

3. What loan would they need to take out to help me?

I am able to pay the amount required on a monthly basis and just find it frustrating that I cannot achieve this directly from my bank.

Your help and advice would be greatly appreciated.

Tixy

1. Difficult to advise without knowing more about your situation. Why do you want to consolidate? to reduce the overall interest? to reduce the term? to reduce the amount you pay out each month?
What debts do you currently have and what are the APRs on each?

2. Don't go down the route of a guarantor loan- if you do the APR will be far far higher than the rate one of your parents would likely be able to get if they simply took out a loan in their own name(s). And the risks to them are just the same as a loan in their own name.

3. Presumably a personal unsecured loan for whatever amount you want to consolidate and they are happy to agree to put in their name.
Depending on how quick you can pay it back and their credit/debt/earning situation they could also possibly consider a 'money transfer' credit card which could possibly work out cheaper (assuming you could repay the whole debt within the promo period of approx 20months).

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Obviously if they do take out a loan in their name they will be responsible for its repayment legally, if you cannot or do not repay for any reason e.g. from loss of income or anything then they will either need to meet the repayments themselves or risk the damage to their credit file(s). If they died whilst the loan was outstanding it would be a debt in their estate.

MusicalLawyer

I don't think asking your parents in the way forward to be honest.
If they take out a loan for you, in their name or as a guarantor on a loan for you, then the company will go to THEM for payment if you don't pay up. Do you really want that for your parents? Do the adult thing, and take responsibility for your own debts.

Get in touch with CCCS or PayPlan - these are charities - they will help you put together a Debt Management Plan. They take in to account your income and outgoings, and how much you can pay each month. You pay the money to them each month, and they distribute it to your creditors FOR FREE.

princess*daisy

Is the car essential? i.e. could you do the same journeys on public transport?

I class a car as a luxury, as I don't drive and I travel 26 miles a day to & from work on the bus/train. Although it might take longer for you to get to place, could you make do on public transport while you sort out your debts, then save up for a car?

RonnyB

Thanks for the responses so far.

I am a self employed IT Consultant and have been struggling with work for a year or so due to illness and bad debtors which have caused issues in my business.

Tixy - This would be mainly to reduce the debts to a manageable, single monthly payment. The debts I currently have are across 3 Credit Cards with the Halifax, Egg and Barclaycard.

MusicalLawyer - Thank you for the guidance. I will certainly look into these sites and I agree that I shouldn't be bringing my parents into this but I am just seeking some stability and support to get back on my feet and to turn my credit score around.

princess*daisy - Unfortunately having a car for myself is crucial to my line of work. I travel throughout the region, to various clients on a daily basis and can cover a large number of miles a day dependant on the client requirements.

princess*daisy

Ahh, I see

Many people will say that any loan to consolidate debts is a bad idea because it doesn't address the crux of the problem - overspending and reliance on CCs/loans. What can (and often does) happen is that people take out a consolidation loan, but fail to address their budgeting, keep the CCs and end up running up big debts again.

I am a prime example of this - I had £8k debts, so I took out a loan to "consolidate", then added another £4k to the loan to decorate the house :eek: then ran up the debts on the CCs again to £9k :eek::eek: Outcome = £21k of debt!!!! :eek::eek::eek:

I now realise I was foolish and that what I should have done was addressed my SPENDING.

It might be useful to post your SOA on here then people could advise you on how you might be able to deal with your debts without taking out another loan. It will also give others a better idea of your financial circumstances and whether other methods are more realistic e.g. DMP. The SOA calc can be found here - http://www.makesenseofcards.com/soacalc.html

I know you are eager not to damage your credit rating, but taking out another loan could well do this, as it would increase the amount of unsecured lending to income ratio. Your credit rating is poor anyway, so my priority would be to pay off the debts without borrowing more, rather than worrying about impact on credit rating. Toots to credit rating - IMO sometimes it's a GOOD thing not to be able to get more credit if you already have a lot of debt!

Good luck

RonnyB

Hi princess*daisy,

Thanks for your advice, it's much appreciated.

I'm very strong willed and just feel if I could clear my accumulated debts, in to a lower, single monthly payment, without a DMP, it would be easier for me to manage. These debts have only amounted due to issues with bad debtors with my business clients and also being ill...otherwise I wouldn't of been in this predicament.

I've already looked at my outgoings and I'm doing very well at cutting back on the luxuries and unnecessary outgoings in my life to get everything under control. Having a car is a necessity though, which i'm currently without.

I'm not currently on the property ladder either and is something I would like to achieve in the not so distant future...so getting my credit rating corrected is a must I feel.

Thanks once again.

rising_from_the_ashes

princess*daisy wrote: »

I am a prime example of this - I had £8k debts, so I took out a loan to "consolidate", then added another £4k to the loan to decorate the house :eek: then ran up the debts on the CCs again to £9k :eek::eek: Outcome = £21k of debt!!!! :eek::eek::eek:

Snap! Except if I add it all up over the various years I did it ....£17k the first time and £14k the second :eek::o - I have now learned the lesson!:)

Ronny it's vital to keep "your" money and the "business" money separate - the business has to pay enough for you to survive on.

I would also advise against the guarantor loan - not really fair on your parents and what happens if something similar happens and you can't pay it?

As a first stop, the SOA would be the best way forward - it's often only when others look at it that we realise we maybe haven't trimmed as much as we could / aren't getting as good deals as we could.

MusicalLawyer

If you've already defaulted on this (these) debt/s, then going on a DMP won't make your credit file any worse at all. As the default will drop off 6 years from the default date anyway.

Plus it will be one monthly payment that you make to your DMP provider, that would be less than what you're paying to them separately most probably.

MrsPorridge

Snap too with Princess Daisy and rising from the ashes.

as result I would never advise on a consolidation loan - from whatever source.