Pre-approved loan for consolidation

ukfff54321 · 31 March 2023 at 1:51PM

Apologies if the above comes across as rude or ungrateful in any way - certainly not my intention

ukfff54321 · 31 March 2023 at 1:59PM

born_again said:

ukfff54321 said: did an eligibility check on Virgin and it comes back with this statement:

You're pre-approved!
Great news! If you apply for one of our credit cards you will be accepted.
Why not apply now? We've already got your details, so we'll make it quick and easy. Please remember, for your result to stay the same, you should:
Apply on the same day
Provide the same information you entered on Card Checker
Pass our standard identity checks (they won't affect your credit rating)
That reads to me as if the approval is guaranteed and my credit rating will not be affected (although I know of course that it will be). Just goes to show as you said.

I think a balance transfer card at 0% is probably the way to go for me as my main objective is to clear the 11.5K avoiding the £180 a month in interest alone. Consolidating the £6800 from my car HP was just a bonus.

Please, Do not think they will give you £11.5K straight off the bat, especially given your other debts. But they may only give you a low amount.

In the main lenders look at you income compared to your available debt. As well as their risk appetite at that point.

If you did get the amount. Then make sure you close the old card down, so as not to be tempted to use it & end up even worse off.

Exactly, that’s my main concern with taking out a 0% balance transfer card (which at the moment seems like the most sensible option). If I apply for a 0% card but they give me less than the 11.5K limit I need then all I have achieved is a hard search on my credit report and another credit card I don’t need. Same goes for a personal loan.

So I guess the question I should have asked is what would be the best advice to pay of a credit card debt in the most effective way for someone with a good credit history that can comfortably afford their current repayments

CliveOfIndia · 31 March 2023 at 2:02PM

There's a couple of problems with consolidation loans. The first one is simply whether or not you are able to get a loan. Since the lender has no way to guarantee you would actually use your loan to clear the credit cards, they have to make the assumption that the new loan will be in addition to - not instead of - your existing debt. So when they run their affordability checks, they'll be basing their figures on a total debt of 22K, not 11K. Meaning you may get declined, or else offered a less than favourable rate.

The second issue is, as has already been discussed, discipline. Now, if you really do use the loan to repay the cards, and you stop using the cards, then great. I'm not saying that a consolidation loan can never work. But in so many cases, the temptation is to merrily start racking up more debt on the freshly-cleared credit card.

Now, how can I say this without sounding really nasty (which is absolutely not my intention!!!)?. OK, putting it bluntly, you say you ended up with 11K of debt due to buying bits for your house renovation. Well, if you couldn't afford to buy the items outright, you shouldn't have put them on your credit card, you should have saved up and bought them when you could afford them. And by extension, why won't you do the same thing again once you've cleared the cards? Please, I must emphasis that I'm not having a dig at you, merely trying to illustrate how easy it is to run up debt without really realising it.

Yes, for sure, if you can be extremely disciplined and not buy what you can't afford, then reducing the interest you're paying by means of a consolidation loan can work. But I personally know of more than one person, and have seen discussions on this forum, where consolidation has done nothing other than to double the original debt.

ukfff54321 · 31 March 2023 at 2:27PM

CliveOfIndia said:

There's a couple of problems with consolidation loans. The first one is simply whether or not you are able to get a loan. Since the lender has no way to guarantee you would actually use your loan to clear the credit cards, they have to make the assumption that the new loan will be in addition to - not instead of - your existing debt. So when they run their affordability checks, they'll be basing their figures on a total debt of 22K, not 11K. Meaning you may get declined, or else offered a less than favourable rate.
The second issue is, as has already been discussed, discipline. Now, if you really do use the loan to repay the cards, and you stop using the cards, then great. I'm not saying that a consolidation loan can never work. But in so many cases, the temptation is to merrily start racking up more debt on the freshly-cleared credit card.
Now, how can I say this without sounding really nasty (which is absolutely not my intention!!!)?. OK, putting it bluntly, you say you ended up with 11K of debt due to buying bits for your house renovation. Well, if you couldn't afford to buy the items outright, you shouldn't have put them on your credit card, you should have saved up and bought them when you could afford them. And by extension, why won't you do the same thing again once you've cleared the cards? Please, I must emphasis that I'm not having a dig at you, merely trying to illustrate how easy it is to run up debt without really realising it.
Yes, for sure, if you can be extremely disciplined and not buy what you can't afford, then reducing the interest you're paying by means of a consolidation loan can work. But I personally know of more than one person, and have seen discussions on this forum, where consolidation has done nothing other than to double the original debt.

Thank you @CliveOfIndia and fully understand you are not having a dig or being judgemental 😊

I could not agree more that it was a silly thing to use a credit card to fast track the completion of my renovation but for reasons that are not best discussed on open forum, balancing the family impact of already over 2 years of disruption and other elements meant that just “getting it done” was the right decision at the time. If I could turn back the clock I would do the same thing again (well actually I probably would have not used a credit card but still would have borrowed).

Understood though that borrowing is and can be a viscous circle - personally though, I don’t want to or need to buy anything else I can’t afford. The circumstances that lead me to reach for the credit card to complete a house renovation was to avoid a much worse situation and circle.

Maybe I should just leave as is and suck up the rubbish interest on my credit card.

Another reason for trying to clear this quickly is my fixed rate mortgage is due for renewal in about 12 months so I wanted my credit status to be in the best shape before this. That being said I have no idea if this makes any difference!

MorningcoffeeIV · 31 March 2023 at 3:04PM

ukfff54321 said:

Exactly, that’s my main concern with taking out a 0% balance transfer card (which at the moment seems like the most sensible option). If I apply for a 0% card but they give me less than the 11.5K limit I need then all I have achieved is a hard search on my credit report and another credit card I don’t need. Same goes for a personal loan.

That's a common misconception made by people carrying too much debt. They think you either have to get all the debt at 0%, or none of it.

If you get offered ANY amount on a BT, you use it to transfer what you can and pay less interest. Now your payments are paying off more of the capital than before.

You don't turn it down. Same goes for a personal loan.

ukfff54321 · 31 March 2023 at 3:20PM

MorningcoffeeIV said:

ukfff54321 said:

Exactly, that’s my main concern with taking out a 0% balance transfer card (which at the moment seems like the most sensible option). If I apply for a 0% card but they give me less than the 11.5K limit I need then all I have achieved is a hard search on my credit report and another credit card I don’t need. Same goes for a personal loan.

That's a common misconception made by people carrying too much debt. They think you either have to get all the debt at 0%, or none of it.

If you get offered ANY amount on a BT, you use it to transfer what you can and pay less interest. Now your payments are paying off more of the capital than before.

You don't turn it down. Same goes for a personal loan.

That is a fair point well made. I was more fixated with carrying an additional credit card but in fact that doesn’t matter as you say.

I am getting a bit confused though why this keeps coming back to referring to carrying too much debt and generalising people in such a situation being prone to misconception and/or temptation?

Not picking a fight or trying to be ungrateful for advice, just saying 😊

CliveOfIndia · 31 March 2023 at 3:38PM

ukfff54321 said:

MorningcoffeeIV said:

ukfff54321 said:

Exactly, that’s my main concern with taking out a 0% balance transfer card (which at the moment seems like the most sensible option). If I apply for a 0% card but they give me less than the 11.5K limit I need then all I have achieved is a hard search on my credit report and another credit card I don’t need. Same goes for a personal loan.

That's a common misconception made by people carrying too much debt. They think you either have to get all the debt at 0%, or none of it.

If you get offered ANY amount on a BT, you use it to transfer what you can and pay less interest. Now your payments are paying off more of the capital than before.

You don't turn it down. Same goes for a personal loan.

I am getting a bit confused though why this keeps coming back to referring to carrying too much debt and generalising people in such a situation being prone to misconception and/or temptation?

That's an easy one to answer - it's simply based on statistics. As I've said before, consolidation loans can work, in certain circumstances. But all too often, people take out a consolidation loan without addressing the underlying cause of the original debt. If they are living beyond their means, for whatever reason, then of course they're just going to carry on accumulating more debt. There are numerous tales of woe caused by just that situation that regularly appear on these forums. Heck, I've been there myself in a former life, it's not a nice place to be. Thankfully I'm now a lot older, a bit wiser, and I did learn from my mistakes.

Now, from what you've described, it sounds like you've got your head screwed on, you understand and have addressed (as it were) the root cause of the original debt. So you may be one of the minority of examples where this could work.

ukfff54321 said:

Another reason for trying to clear this quickly is my fixed rate mortgage is due for renewal in about 12 months so I wanted my credit status to be in the best shape before this. That being said I have no idea if this makes any difference!

As far as it goes it makes no difference. A mortgage company (indeed, any lender) is far more concerned with the level of debt than the vehicle that's carrying it. If taking out a loan means that your overall level of debt is lower when you come to apply for a mortgage, that's undoubtedly a positive. And yes, as MorningCoffee says, if you are able to transfer even a portion of the debt to a 0% card then go for it.

The only thing to bear in mind is that it's a bad idea to take out new lines of credit in the run-up to a mortgage application. If your mortgage renewal is 12 months away then you'll be fine, but when it gets to about 4 or 5 months before you'll be wanting to apply, try and keep your credit status stable - pay down existing debt as much as possible, but don't take out any new lines of credit.

ukfff54321 · 31 March 2023 at 3:46PM

CliveOfIndia said:

ukfff54321 said:

MorningcoffeeIV said:

ukfff54321 said:

Exactly, that’s my main concern with taking out a 0% balance transfer card (which at the moment seems like the most sensible option). If I apply for a 0% card but they give me less than the 11.5K limit I need then all I have achieved is a hard search on my credit report and another credit card I don’t need. Same goes for a personal loan.

That's a common misconception made by people carrying too much debt. They think you either have to get all the debt at 0%, or none of it.

If you get offered ANY amount on a BT, you use it to transfer what you can and pay less interest. Now your payments are paying off more of the capital than before.

You don't turn it down. Same goes for a personal loan.

I am getting a bit confused though why this keeps coming back to referring to carrying too much debt and generalising people in such a situation being prone to misconception and/or temptation?

That's an easy one to answer - it's simply based on statistics. As I've said before, consolidation loans can work, in certain circumstances. But all too often, people take out a consolidation loan without addressing the underlying cause of the original debt. If they are living beyond their means, for whatever reason, then of course they're just going to carry on accumulating more debt. There are numerous tales of woe caused by just that situation that regularly appear on these forums. Heck, I've been there myself in a former life, it's not a nice place to be. Thankfully I'm now a lot older, a bit wiser, and I did learn from my mistakes.
Now, from what you've described, it sounds like you've got your head screwed on, you understand and have addressed (as it were) the root cause of the original debt. So you may be one of the minority of examples where this could work.

ukfff54321 said:

Another reason for trying to clear this quickly is my fixed rate mortgage is due for renewal in about 12 months so I wanted my credit status to be in the best shape before this. That being said I have no idea if this makes any difference!

As far as it goes it makes no difference. A mortgage company (indeed, any lender) is far more concerned with the level of debt than the vehicle that's carrying it. If taking out a loan means that your overall level of debt is lower when you come to apply for a mortgage, that's undoubtedly a positive. And yes, as MorningCoffee says, if you are able to transfer even a portion of the debt to a 0% card then go for it.
The only thing to bear in mind is that it's a bad idea to take out new lines of credit in the run-up to a mortgage application. If your mortgage renewal is 12 months away then you'll be fine, but when it gets to about 4 or 5 months before you'll be wanting to apply, try and keep your credit status stable - pay down existing debt as much as possible, but don't take out any new lines of credit.

Thank you very much, and understood on the statistics! Appreciate the advice from everyone

DrEskimo · 31 March 2023 at 6:35PM

ukfff54321 said:

MorningcoffeeIV said:

ukfff54321 said:

Exactly, that’s my main concern with taking out a 0% balance transfer card (which at the moment seems like the most sensible option). If I apply for a 0% card but they give me less than the 11.5K limit I need then all I have achieved is a hard search on my credit report and another credit card I don’t need. Same goes for a personal loan.

That's a common misconception made by people carrying too much debt. They think you either have to get all the debt at 0%, or none of it.

If you get offered ANY amount on a BT, you use it to transfer what you can and pay less interest. Now your payments are paying off more of the capital than before.

You don't turn it down. Same goes for a personal loan.

That is a fair point well made. I was more fixated with carrying an additional credit card but in fact that doesn’t matter as you say.

I am getting a bit confused though why this keeps coming back to referring to carrying too much debt and generalising people in such a situation being prone to misconception and/or temptation?

Not picking a fight or trying to be ungrateful for advice, just saying 😊

It's not just misconception or temptation, its that life happens. As it did when you took the credit for the house work.

By stretching the payments over many more years you just inevitably increase the likelihood that you will need to large sums of money, whether it's further renovations, moving costs, replacement cars, boilers, etc. Unless you have factored and budgeted these items in, you will have no option but to resort to credit again.

enthusiasticsaver · 31 March 2023 at 9:14PM

I won’t labour the point that debt consolidation usually doesn’t work but I would ask why you haven’t applied for BT cards? If they won’t give you £11500 based on affordability they may give you the option of transferring some saving you interest. If they won’t give you any then you won’t get a decent rate for debt consolidation anyway as lenders presumably perceive you are carrying too much debt already.