Will I get a loan?

Bravehearted_2

So in your scenario where the banks aren't declining people on affordability, on what criteria will they decline people?

Everyone with debts here and there can apply for a "consolidation" loan - the bank pays it off, they amass more debt, apply for another consolidation loan, that gets paid off and repeat cycle.

Is that your idea- cos that's what will happen if affordability isn't being judged.

The banks aren't a charity and are there to make a profit by deciding which business model and strategy suits them and shareholders best.

The fact that their model pushes you out of their view because you took on more debt than they are willing to cover doesn't make the system flawed. You just think its flawed.

The car finance trade you describe - first is comparing apples and oranges. The car finance system is one of the most rubbish, which is why people still prefer to get a loan from the bank to buy the car rather than take the dealers finance. And that is why the car finance rates are always rubbish.

Overall, that's why you see people taking car finance that they can't really afford.

In your car finance example, when someone takes a finance they cant afford and default, guess what? There is an asset the lender can take back to recoup their money.

Comparing that to a bank - when the "load of customers" you describe default, what do the banks seize to get their money back?

Thought so.

Can you just retire this IMO silly idea which for some reason only you think is genius and money making. Borrowers should pay down debts without the assumption they should be given a loan to consolidate each time they take on new debt.

debtcutter

pheonixrising21 wrote: »

I've been suggesting something like this for ages on these forums, only to be [borderline] abused.

I've suggested that consolidation loans should work like car finance, where the dealer pays off your old finance for you as part of the trade in on your old car.

If a new lender were to never actually give you the cash, but instead use it to pay off all your outstanding debts and close said accounts on your behalf.

I've been told it can't be done as lenders are not allowed to close accounts on your behalf. Yet the motor trade manage it perfectly well, unless every motor dealer and the finance companies they use are breaking the law?

I've been told that it can't be done unless some almighty Government agency looks after the whole thing and constantly checks your debts to make sure you have the lowest rates. I, again, pointed to the motor industry which manages perfectly well without an over-riding government agency telling us that its time to change car. If you want a new car, you do all the research into what car you want yourself, go and negotiate the deal yourself, etc, etc.

I've been told it can't be done because the banks don't have that level of communication. Again, the motor trade manage it, and also the banks manage well enough to talk to each other when you use their current account switching service.

The main reason why banks don't do this is pure profit. If everyone had the ability to easily consolidate their £10k CC debts at (say) 18% into a loan at say 9%, the banks, as a whole, would lose out on a shedload of interest.

Instead, they use affordability as the reason to decline you. "You have £10k debt with other lenders at a high rate? You want £10k to pay it off and pay us back at a lower rate? Sorry, thats £20k total debt, you can't afford that, no loan for you!"

Like you say, there is a genuine gap in the market for this and the first bank to offer this service will gain a load of customers. The rest will lose money, so no one will do it.

No one here has yet come back with a valid reason why this wouldn't work, apart from the banks collective loss of profit.

Anyway, rant over

Some lenders do this.

Most credit cards will offer to automatically sort your balance transfer, if you've told them that you want to use the new card for that. They take the account details for your old card and do the transfer when you agree to the new one.

"The main reason why banks don't do this is pure profit. If everyone had the ability to easily consolidate their £10k CC debts at (say) 18% into a loan at say 9%, the banks, as a whole, would lose out on a shedload of interest."

That's total nonesense.

If you owe Bank A £10K @ 20% apr, Bank B doesn't benefit from not allowing you to consolidate debt with Bank A with them, at a lower rate.

If their risk model thinks you're a decent credit risk @ below 20%, they'll offer it to you. If they don't, they won't.

You can't think of "banks as a whole" anymore than you can think of "football teams as a whole". If one team loses a game, it's not 3 points lost for all teams, 1 team wins 3 points, 1 team doesn't.

Same thing with the banks. 1 bank loses a customer (and the interest they make on £10K @ 20%apr) and one bank will potentially make money on the £10K they've lent at a lower APR (if they've judged the risk correctly and it gets repaid)

The notion that people don't like lenders declining people for affordability is ridiculous. It's the single most important thing. Credit score means nothing if you can't afford it. Not being able to afford it is a definite. Assuming someone's future will correlate with their past is not.

I literally have no idea what you mean by this gap in the market. Card providers do this for people wanting to transfer balances. They offer to switch for you, I'm sure they take the reduced payment towards your current card into consideration when working out if you can afford. That doesn't mean you might not still be declined for affordability.

somethingcorporate

debtclutter, whilst I am sure you mean well and your advice may be good for a number of people I cannot help but feel you have not been hanging around the dfw and loan forums long enough to see some of the car-crash horror stories that consolidation brings.

Use your example of £10k debt on cards. They take out £10k loan to clear said cards, do it, and now have £10k loan and £10k unspent credit limit.

What happens? they go and spend that £10k they have now freed up and rather than consolidation helping their debt position they now have twice as much.

There are dozens and dozens of examples on MSE of this precise thing happening and posters suggesting consolidating is the worst thing they could have done. It doesn't take many "double-ups" suggested above before you are in serious levels of debt (think £40k+) with not much to show for it but massive debts and crippling levels of interest.

debtcutter

Sorry @ something corporate, but I couldn't disagree more with both what you've said and the tone in which you've said it.

It's just insulting to think that you you are willing to give advice to someone, that you simply wouldn't follow yourself.

I'm not saying the recommendation should simply be:

"Consolidate if you can find a cheaper option" /end of conversation, but that it's completely wrong to say "paying off 1 debt with another is never the right thing to do"

Why is it an either/or situation?

You can explain why it's good to reduce the amount of interest you pay.

You can explain why it's dangerous to have £10K available on a card if you're the type of person likes to spend money, without saying that paying off a debt with a cheaper form of debt is a bad idea. It's a non-starter of an argument.

If we both agree that the object of repaying credit is to pay back as little interest as possible (I assume we do agree) then it's not question of "whose opinion is a bit better?" it's a question of my advice is correct, the advice that "you should never borrow to pay off other debt" is not correct and the advice "borrowing to repay debt is a good idea" is just incomplete, lazy advice that I'm not suggesting people should give either.

It's so incredibly patronising to give advice that you wouldn't follow yourself, especially if it takes 10 secs longer to give complete advice that covers pretty much every type of person

andy.m_2

The goal is to get Debt Free, not debt shuffled or worse still, debt doubled.

debtcutter

andy.m wrote: »

The goal is to get Debt Free, not debt shuffled or worse still, debt doubled.

Agree.

How does moving debt from a higher interest to a lower interest form of credit impact that goal? It impacts it positively, as it enables you to get there in less time, by spending less money.

If there isn't a single option available to you that is cheaper, then don't switch.

I'm not suggesting that there's any point in swapping one 20% APR loan for another 20% APR loan, or a 20% APR loans for 25%APR loan.

I also would never recommend that someone swaps a 3 year 20% APR loan for a 5 year 20% APR loan, if they can afford repayments on the 3 year loan.

I don't think you actually disagree with these points, surely?

It seems the disagreement is around whether some people are smart enough to understand these points. I think it's insulting to think that they can't. If you tried to explain this to someone and they ended up not paying off the old credit with the new, cheaper one and the action of paying the old credit off with the new one wasn't in your instructions, the problem is that the person giving advice isn't smart enough to be giving good advice, as much as the person receiving it isn't smart enough to follow it.

somethingcorporate

debtcutter wrote: »

Sorry @ something corporate, but I couldn't disagree more with both what you've said and the tone in which you've said it.

It's just insulting to think that you you are willing to give advice to someone, that you simply wouldn't follow yourself.

I'm not saying the recommendation should simply be:

"Consolidate if you can find a cheaper option" /end of conversation, but that it's completely wrong to say "paying off 1 debt with another is never the right thing to do"

Why is it an either/or situation?

You can explain why it's good to reduce the amount of interest you pay.

You can explain why it's dangerous to have £10K available on a card if you're the type of person likes to spend money, without saying that paying off a debt with a cheaper form of debt is a bad idea. It's a non-starter of an argument.

If we both agree that the object of repaying credit is to pay back as little interest as possible (I assume we do agree) then it's not question of "whose opinion is a bit better?" it's a question of my advice is correct, the advice that "you should never borrow to pay off other debt" is not correct and the advice "borrowing to repay debt is a good idea" is just incomplete, lazy advice that I'm not suggesting people should give either.

It's so incredibly patronising to give advice that you wouldn't follow yourself, especially if it takes 10 secs longer to give complete advice that covers pretty much every type of person

Yet I cannot see a single time in your posts in this thread that you have not once considered there could be any risk of consolidation.

I'm going from the dozens and dozens of threads where I have seen it become an absolute financial car crash. I obviously agree it's better to pay down debt and to substitute more expensive debt with cheaper alternatives - I am suggesting that consolidating can come with as many risks as benefits as the empirical evidence on this websites is testament to.

debtcutter

somethingcorporate wrote: »

Yet I cannot see a single time in your posts in this thread that you have not once considered there could be any risk of consolidation.

I'm going from the dozens and dozens of threads where I have seen it become an absolute financial car crash. I obviously agree it's better to pay down debt and to substitute more expensive debt with cheaper alternatives - I am suggesting that consolidating can come with as many risks as benefits as the empirical evidence on this websites is testament to.

Fair point.

If you hadn't posted the point that I disagreed with, I wouldn't have clarified my position and this thread would have had 2 incomplete pieces of advice that if followed to the letter, could lead to someone doing something against their interests.

I've now added the important piece of advice to mine, so readers of this thread will see my advice as:

1) if cheaper credit is available, take it - it saves you money.

2) When you do this, pay off the old debt immediately. If you're currently trying to get out of debt, you don't need to "keep the £5K limit card just incase you need it later".


Fair enough though, the original post I made didn't mention the second point (pay off the old debt immediately) so can see where you were coming from now.

somethingcorporate

debtcutter wrote: »

Fair point.

If you hadn't posted the point that I disagreed with, I wouldn't have clarified my position and this thread would have had 2 incomplete pieces of advice that if followed to the letter, could lead to someone doing something against their interests.

I've now added the important piece of advice to mine, so readers of this thread will see my advice as:

1) if cheaper credit is available, take it - it saves you money.

2) When you do this, pay off the old debt immediately. If you're currently trying to get out of debt, you don't need to "keep the £5K limit card just incase you need it later".


Fair enough though, the original post I made didn't mention the second point (pay off the old debt immediately) so can see where you were coming from now.

Your logic is undeniable, the only issue is shoving illogical humans into the mix you tend to find for every 1 that does the right thing there is 1 that splurges with all that freed up credit!

We tend to get the splurgers here!