Loan Advice

carcuscrae

Hi

Ok so i've got a loan with my bank and a couple of cards with balances on that i'd like to consolidate into a new loan. I go to the bank and the rate they offer me is higher than I have on my existing loan. I check my credit file and there is nothing obviously wrong there so i go back to the bank and ask them why it could be.
The man in the bank says it could be because I have a lot of available credit, i think my total available on all my credit cards is around £28000, although I currently only use about a 5th of that and the bank guy says lowering my available credit could help on reducing the rate offered.
So i go to my credit card company to ask them to lower my available limit and they tell me that could have a negative effect on my credit rating, so now what do I do?
Is there any truth in what either of the companies are saying as i'm not sure whether to reduce my credit or not?
Thanks

Ebe_Scrooge

Yes, having a lot of available credit can impact your ability to get more credit - lenders will look at a worst-case scenario whereby you max out all your existing credit in addition to the new loan, then struggle to repay everything.


Yes, having a card company reduce your limit can look bad - other lenders will say "Why has this lender reduced his limit, maybe he's already struggling"


You could close any unused cards, that will reduce your available credit without having such a negative impact.


BUT ... taking out a loan to repay existing debts is very rarely a good idea. Apart from anything else, the temptation to spend on your now-cleared cards is very strong.


Much better to reduce your outgoings and concentrate on repaying your existing debt. Long-term it'll save you loads in interest, as well as a much-reduced headache and worry.

Candyapple

Think about it like this, if you have £28k available to you and you only have a balance of say £6k - lets say you wanted to take out a loan of £6k, the loan provider doesn't see it as you clearing your debts and paying it off at a lower rate, they see it as hold on, this guy has £22k credit available to him already, if we give him £6k he could go out and blow the £22k PLUS the £6k we've given him and then he won't be able to make the repayments so we get zero back.

If you have £22k available credit, why don't you look at if you can get any 0% offers from your existing providers rather than taking out a new loan?

If you lower your limits yes it will temporarily affect your credit history but as long as you maintain your payments, shouldn't be a problem.

CLAPTON

carcuscrae wrote: »

Hi

Ok so i've got a loan with my bank and a couple of cards with balances on that i'd like to consolidate into a new loan. I go to the bank and the rate they offer me is higher than I have on my existing loan. I check my credit file and there is nothing obviously wrong there so i go back to the bank and ask them why it could be.
The man in the bank says it could be because I have a lot of available credit, i think my total available on all my credit cards is around £28000, although I currently only use about a 5th of that and the bank guy says lowering my available credit could help on reducing the rate offered.
So i go to my credit card company to ask them to lower my available limit and they tell me that could have a negative effect on my credit rating, so now what do I do?
Is there any truth in what either of the companies are saying as i'm not sure whether to reduce my credit or not?
Thanks

that may or may not be so

what is you total level of debt and what is your salary

carcuscrae

Ok I understand the point about exposing myself to more credit and also about it not being the best option to refinance. However, my plan is to reduce my current loan rate, as the bank now offer a rate lower than i'm currently on to qualifying customers, and also I will be getting rid of the credit cards once i've paid them off.
Taking this into consideration, would you think my best option to reduce my credit card limits and return to the bank and try the loan route again? Or is it not worth it as it won't make that much difference.

If I get the loan I will cancel the two cards I have a balance on and this will knock £17000 off my available credit anyway.

Thanks

Candyapple

carcuscrae wrote: »

Ok I understand the point about exposing myself to more credit and also about it not being the best option to refinance. However, my plan is to reduce my current loan rate, as the bank now offer a rate lower than i'm currently on to qualifying customers, and also I will be getting rid of the credit cards once i've paid them off.
Taking this into consideration, would you think my best option to reduce my credit card limits and return to the bank and try the loan route again? Or is it not worth it as it won't make that much difference.

If I get the loan I will cancel the two cards I have a balance on and this will knock £17000 off my available credit anyway.

Thanks

Depends on how long it’s been since you took out your original loan. There was a thread on here the other day whereby the person took out a loan with their bank and similarly wanted to take out a further loan as rates had reduced, but because it had been less than 18 months into the first loan with the bank, the bank would only offer them a silly rate like 18%.


Also, affordability comes into play.

You said you had £28k limits with a fifth being used (roughly £6k) if you are not using the existing £22k then reduce it. If you have cards which offer money transfers such as MBNA, then why not use those instead of a loan?

MEM62

Two things that can have a negative impact - high available credit and high utilisation of credit. I believe I saw someone cast an opinion that the ideal is to keep both below 50%. Ie Unsecured borrowing at less than 50% of your annual salary and utilisation of available credit less than 50% of what is available to you.

I cannot see that reducing your current limits, either by having individual card limits lowered or by cancelling cards will have a negative impact on how lenders view you.

I would try reducing the limits on your cards and then try again in a month or two. You may well be offered a better rate.

Nebulous2

I've posted about this before - I'm not at all convinced by the idea that high available credit makes much difference. I've had credit card limits of over twice my salary in the past. I reduced them at one point but they are creeping back up again, and I have no problem getting credit - in fact I get offered it without asking!