How long does it take to improve Loan Affordability?

leslieleee

Hi everyone, 

I have taken out many credits between early 2020 and April 2022, from high street bank personal loans to payday loans, with APR from 5% to an insane percentage. But I didn't miss any payments. With the help of family, I paid off most of them this May. My annual income before tax is £40,000. 

Currently, I have three debts remaining:
(1) mortgage (outstanding £110,000, paying £420 every month),
(2) a personal loan (APR 4.9%, 40 months remaining, current balance approx £4700. I paid £110 every month)
(3) a personal loan (APR 10%, 50 months remaining, current balance approx £10700. I pay £210 every month)

No overdrafts in my bank accounts. No credit card debts. I'm paying a large sum per month to family members who helped me with the majority of the settled debts, but those are not shown on my credit report (I'm grateful otherwise my monthly disposable income will not look good). So, on paper, my monthly disposable income is around £1000.

I would like to know how long it will take to have my loan affordability score improved. I am keen to take out a consolidation loan to tackle Loan (3) as the APR of 10% is too high, and if I can get a debt consolidation loan of APR 3% (or even lower), I can save more interest and have £20-30 extra disposable income.

I've joined MSE credit club and also Credit Karma to keep an eye on the accuracy of my credit file and also to see whether my scores and loan affordability has improved. I haven't taken any new credits since late April, but my loan affordability did not improve much after 3 months. Soft search on both MSE credit club and Credit Karma indicates that I have 0% chance to be accepted by high street bank for debt consolidation loan (looking at APR 3% or less, £10700, for 60 months).

I know that I need to be patient for a few more months. But I just wonder if there's actually anything I can do to accelerate the improvement of my loan affordability. 

Many thanks for reading. 

leslieleee

Or should I consider taking secured loan to consolidate Loan (2) and (3) together? Soft search on Experian suggests that it may be possible to get a debt consolidation loan with APR 4.6% (Loan Overall Cost 9.43% APRC), making my monthly loan repayment from 320 (110+210) to 264. 

I am a bit worried about the implication of secured loan so any advice would be much appreciated. My priority is to increase my disposable income and save as much interest as possible to deal with the rising living cost...

[Deleted User]

None of the scores, including your loan affordability one, have any bearing in your chances of getting a loan. Lenders will look at your credit history and circumstances.

Don't turn unsecured debt into secured. Visit the DFW boards for advice on cutting costs and approach any consolation loan with extreme caution.

Use your £1000 a month spare cash to overpay the 10% loan.

leslieleee

Deleted_User said:

Use your £1000 a month spare cash to overpay the 10% loan.

Thanks. The reality is that I've only 400 every month after paying mortage, existing debts, and also repaying family who helped me with settling the high interest loans. So I won't be able to overpay any of the loans... 

[Deleted User]

Why not, if you have £400 left over?

If you can't overpay at all, then there's no way you can afford another loan.

leslieleee

I still need to pay for food, transport and prescriptions. After all I may only have 5 or 10 quids at the end of each month. I think my question is - will waiting for a few more months actually improve my chance of getting a lower interest loan?

leslieleee

Thanks for your reply zx81 - my original post was about debt consolidation loan - I can afford to make repayments of 110+210 each month but I'm looking for ways to reduce this payment by turning to consolidation loans with lower interest. In that sense I'm not looking for a 'new' loan with extra repayment per month...

[Deleted User]

Ok  Disposable income means money left over that you can use as you wish  if it's for food, it's not disposable.

You need to get your existing debt down to improve your chances of further borrowing. Time alone won't make any difference, so head to the DFW boards. 

cymruchris

There's no 'set in stone' timescale as to when your desirability as a customer goes up or down to financial providers - and it can take years for some things to be reflected in whether you're seen as a good risk or not. If you've taken payday loans in the last year or two, they'll certainly have an impact on your desirability as a customer, and will likely have a more negative impact for at least a year or two. The further they are behind you the less likely they'll impact - but it's years not months. 

Unless it's life and death - don't take out another payday loan - ever!

You need to have a good look as to what's coming in and going out to see if there's anything you can have an impact on.

You're not going to be able to borrow your way out of debt with a low APR until you've got steady repayment history behind you for quite some time (without a payday loan in sight). 

It's good you are getting family support - how would they feel at deferring say half the payment so you can pay down the existing 'on-file' credit first that's incurring the interest, and then increasing the amount to them when your balances are lower?

Don't take secured - it's your house - if something goes wrong - there's a good chance you'll lose it.

Have you done a real penny by penny review of spending? Can you cut any subscription services or lower monthly packages? (TV, broadband, mobile, music etc.) Have you had a root around the cupboards to sell off items that you're not using on ebay? (yes they'll sell for far less than you paid for them - but now the focus should be money in the bank - not stuff in the cupboards). 

Every pound you can throw against the debt will bring it down that much quicker. 

leslieleee

cymruchris said:

There's no 'set in stone' timescale as to when your desirability as a customer goes up or down to financial providers - and it can take years for some things to be reflected in whether you're seen as a good risk or not. If you've taken payday loans in the last year or two, they'll certainly have an impact on your desirability as a customer, and will likely have a more negative impact for at least a year or two. The further they are behind you the less likely they'll impact - but it's years not months. . . .
Every pound you can throw against the debt will bring it down that much quicker. 

Thank you so much for your reply - very useful indeed and much appreciated.

I don't see myself taking any more payday loans in the future, for sure. I've done a penny-to-penny budget plan with my family. Currently, I am juggling a few things: (1) reduce expenses (the rising train ticket cost and gas bill are the most worrying), (2) rebuilding my reserve - I aim to have £10-20 left every month after paying for food, transport, and personal medication, (3) repay my family as soon as possible. We agreed on the amount of monthly repayment and it should be cleared by 2026. 

I don't want to delay the date when I can fully repay my family - as they aren't charging any interest and the amount they lent me was quite large. I feel obliged to repay as early as possible as they also need their rainy day money...

Having another look at some of the secured loan quotes - the interest rate is still quite insane so it's definitely a not for me now...

Thanks so much for telling me the reality that I'm looking at years instead of months to improve my loan affordability due to the records of payday loans on my credit file. I was hoping to get a consolidation loan by the end of this year to reduce overall interest paid, but it seems that it is more realistic to overpay my loan bit by bit to hopefully save a few pennies of interest.

MrFrugalFever

Hi Leslieleee,

The issue you will face is almost all lenders will almost certainly see the ‘new loan’ as in addition to as opposed to in replacement of. You cannot and will not change their view. The reason for this is because they will likely assume that this new loan will not be used to pay off the other debt, but rather you’ll go and spend it and end up far worse off.

Loan affordability is generally assessed on debt to disposable income and at the moment, from what you’ve said, you have about £10-20 left at the end of the month….would you lend to yourself on that basis? I know I wouldn’t.

Consolidation is dangerous and not to be advised (if you read many threads on the DFW boards this will be echoed time and time again). 

As hard as it may be, it would be best to head on over to the DFW board, armed with a full SOA (statement of affairs - monthly income and expenditure breakdown) and be honest about your situation so we can best help. Owing money to friends/family is also something that is generally ill-advised, however, you are where you are so it is now a case of how best to come out the other side smiling as opposed to drowning in more debt.

best wishes