Should we accept this?

vernell

HI


Im hoping someone can offer us some advice as we are looking to consolidate our debts (loan, credit cards and overdraft) to get us back on track so we can then apply for a better mortgage rate eventually as our current one is pretty dire!


We visited our bank today to see about getting a new loan from them to pay off the £7400 owing on our current loan, £4600 on my credit card (£1600 is interest free until Feb 2015), £2600 on my husbands card and his £1200 overdraft.


The result was eventually a yes but at a rate of 12.9% rather than the advertised 6.9% (we weren't expecting this rate but were hoping for something a little kinder than 12.9%) and the conditions were my husband would have his overdraft cancelled completely and mine would be decreased by £200. We were okay about this as we hope to not need them once we pay them off as we are in a better position now than 2 years ago.


We currently pay £460 for the loan, cards and overdraft fees and the new loan would cost us £353, so we would be £100 a month better off but I'm wondering if you think we should look around first or would making multiple applications affect our credit rating further?


Any idea who we should apply to, obviously the most lenient ones, if anyone knows who these are? Or is it pointless if our current bank initially refused but then relented but at a high interest rate and conditions?


My husband currently earns £23k pa and me £12500pa as IM just part time as we have a young son.


Thanks

Cyberman60

I was recently offered 4.6% on a loan through the post for up to 15K (poss M&S). That 12.6% is very high IMO.

Gaz83

Multiple applications will decrease the likeliness of you being accepted.

No-one will be able to tell you who the more 'lenient' ones are, as lenders don't publish their acceptability criteria. Generally your own bank will know you more than a lender you've no dealings with. It's unlikely you'll be given a better deal from anyone else.

Before you go ahead with this, have you looked at snowballing the debts? The lower monthly payment might seem attractive just now, but it might not if you're paying it for three or four years longer than you would have been had you just cut down and attacked the debt.

Gaz83

Cyberman60 wrote: »

I was recently offered 4.6% on a loan through the post for up to 15K (poss M&S). That 12.6% is very high IMO.

No you weren't. You were sent a marketing brochure advertising the headline rate, which only 51% of successful applicants will be offered.

12.6% isn't the worse rate I've heard of for someone owing nearly £16k and looking to borrow another £16k. I'm surprised the bank even accepted.

Cyberman60

Gaz83 wrote: »

No you weren't. You were sent a marketing brochure advertising the headline rate, which only 51% of successful applicants will be offered.

12.6% isn't the worse rate I've heard of for someone owing nearly £16k and looking to borrow another £16k. I'm surprised the bank even accepted.

It was a letter addressed to me, not a general marketing brochure. As mortgage rates are around 3-4%, 12.6% is high IMO.

Gaz83

Cyberman60 wrote: »

It was a letter addressed to me, not a general marketing brochure. As mortgage rates are around 3-4%, 12.6% is high IMO.

Mortgage rates are lower because mortgages are secured on an asset. The OP is looking for an unsecured loan, which is always going to be higher. Especially with £16k of debt.

And fair enough if it wasn't a brochure, but it's incredibly easy to make it look like a formal letter addressed to you - just takes a mailmerge. There will have been something on the letter about the rate, stating that the rate offered to you would depend on your personal circumstances. I've had identical letters myself. They are not offers - they are marketing. Doesn't matter if it's a brochure or not.

vernell

I know exactly what you are saying about being lucky we were accepted, I had that feeling whilst we were there and listening to the lady dealing with us, grovelling on our behalf. I just don't know what would look better on our credit files, just one loan for 5 years or a loan for 2 years, a credit card each for god knows how long and a large overdraft which is decreasing but slowly?


What is snowballing by the way? We'd consider anything if it helps our situation which although isn't the worst, definitely isn't the best!


Thanks

thebritishbloke

Cyberman60 wrote: »

It was a letter addressed to me, not a general marketing brochure. As mortgage rates are around 3-4%, 12.6% is high IMO.

Do you really not realise how easy it is for a company to mass-print letters with different names and addresses on them?

Tixy

What are the interest rates on each of your current debts? How does that compare to the 12.9% on the new loan?

Are you unable to afford the current repayments amount of £460? do you find you are having to reuse credit each month? are you falling further in to debt.

Snowballing is repaying your debts in the best way to minimise interest, it does require you to be able to afford more than the minimum payments on your debts though. There is a calculator here http://www.whatsthecost.com/snowball.aspx

Is your current mortgage deal fixed? if so when does it end?

Gaz83

Tixy wrote: »

Are you unable to afford the current repayments amount of £460?

This is an important point.

If you go ahead with the plan, but can afford the £460 you're currently paying, it would be far better for you to throw the £460 per month at the new loan rather than £353. It'll get it paid off far quicker.

JimmyTheWig

Gaz83 wrote: »

12.6% isn't the worse rate I've heard of for someone owing nearly £16k and looking to borrow another £16k. I'm surprised the bank even accepted.

Sounds like it was only offered on the basis that they'd be reducing their debt.