Applying for a loan whilst in overdraft

gazid

Hi all,

I wish to apply for a loan with my bank.
This is to consolidate debts with 3 credit cards; a total of around £9,000.

My credit rating is fair to good but since paying a large tax bill at the end of Jan, I have been in (authorised) overdraft on two current accounts for 2 1/2 months. This will eventually right itself but my question is: Should I wait until I have been in credit for a couple of months before I apply?
Are they likely to look less favorably upon the application as the performance of the accounts has recently been poor?

Added into the mix is that I am self employed and have never had a loan before.

Many thanks in advance.

BugsyBrowne

What's your salary?
Any missed/late payments?

chalkie99

He won't have a salary - he is self employed.

OP - How long have you been self employed?

You will normally need or 3 years proper accounts to show your ability to pay any loan back. The fact you have paid a large tax bill suggests you must have made a decent profit so the bank will need to know where this has gone.

More importantly. if your tax bill has tipped you into an overdraft it seems you have been spending money from the business that should have been put aside ready for that bill. If the bank has already allowed you an agreed overdraft to help you out on this error then they may be less likely to lend to cover credit cards as well.

Consolidation is rarely a good idea. Ultimately, you need to look at your spending and consider where you can cut back or, perhaps, not re-invest in the business so heavily, if that is what you have been doing, so that not only can you pay down the overdraft and cards but also ensure you are saving enough for next years tax bill.

BugsyBrowne

I am sure many people on here make up their answers when going along.

Chalkie he is asking HIS own bank, so what's all this 3 years accounts your talking about.

Salary I was talking average.

moatmeister

Having questioned the forum recently along similar lines it would seem the answer is, it depends on your personal circumstances. Problem is, its a black art and no one really knows apart from the bloke who is going to sign off your loan and you cant get to speak to him,either because "they" wont let you or because he is a computer programmed to say "no" in preference to "yes" that no one actually understands the full workings of.

Whilst it does not affect your credit file as such, and you might assume seem that being within your agreed overdraft limit would be seen as acceptable to the bank because they gave it you, it does figure in the affordability calculation that they will do, and also will be used as a black mark in their own top secret internal scoring systems of which your credit report is only a part of.

In an ideal world (such as the one the underwriters live in), clear the overdraft, or at least reduce it on a monthly basis, Do not put "debt consolidation" down on the application form, and get your credit cards to at least below 75% of your limit as seen on your credit file before lighting the blue touch paper.

However I accept that that may not be possible in which case you just have to apply and take the risk of being declined.

Take an overall view of the situation, then just stand back and hope for the best. Its all you can do. Good Luck!

cos_2

I think the basic answer is yes.

Put yourself in the lender's position and it's clearly better to see you've paid off your overdraft borrowing before asking for more credit. I think many of us would benefit from getting a credit report and study it as if we were going to lend to ourselves.

It looks like you've already thought about it along those lines.

chalkie99

BugsyBrowne wrote: »

Chalkie he is asking HIS own bank, so what's all this 3 years accounts your talking about.

Salary I was talking average.

BUSINESS (TRADING) accounts - not bank accounts.

Employed people have salaries - self employed have profits (or losses).

His bank account won't show a payslip and won't show if he has an audited profit sufficient to warrant a loan.

BugsyBrowne

chalkie99 wrote: »

BUSINESS (TRADING) accounts - not bank accounts.

Employed people have salaries - self employed have profits (or losses).

His bank account won't show a payslip and won't show if he has an audited profit sufficient to warrant a loan.

See what your saying.
So why didn't I have to show 3 years accounts when Barclays gave me a loan no it was not 9k but they still lent me money.

gazid

Thanks all for your input. I have been self employed for 8 years +.
I pay around £250 per month on credit card debts but am only paying off the interest each month and barley touching the debt itself. So even if I get a loan at 11-15% over 4 years, I am still miles better off and know that the debt is actually being addressed.

chesky369

What's your estimated annual income - after normal business expenses (i.e. what you have to live on).

gazid

Really not pretty at all: Around 15,000 - 17,000 after rent and utilities which I include because I work from home.