Abacus Daily Debt News

The likelihood of many debtors being successful in their applications for personal loans is decreasing as creditors strengthen their lending criteria, an industry expert has observed.

Michelle Slade of Moneyfacts.co.uk stated that it is only those borrowers “with blemish-free credit records” that are likely to be taken on as new customers, a result of prolonged increases in unemployment and fear on the part of lenders that loans may be defaulted on.

“The upward trend in rates looks set to continue,” she said, adding that “anyone in need of a personal loan really needs to ensure they do their homework” to avoid losing out financially.

Ms Slade went on to note that £335 has been added to the cost of a typical £25,000 personal loan in the last six months.

Some overdraft charges also appear to be on the rise, with Halifax and Bank of Scotland recently announcing plans to bring in daily charges of £1 for all accounts with an overdraft of £2,500 or less.

Many debtors should consider  debt management as an alternative to further borrowing . Debt management  consolidates payments into one lower amount , but does not increase the size of the debt.

By Sarah Adie

The start of the new year is the busiest time for people taking out personal loans to consolidate debt and apply for debt management plans.

Sainsbury’s Finance, which has just reduced its online personal loan deal to 8.1 per cent typical APR, has noted that January is a peak time for people seeking to clear their debts.

The company stated that it offers one of the most competitive deals currently available on the market, with the new rate applying to loans of between £7,000 and £25,000.

“Debt consolidation is always a good idea if you have multiple sources of debt, maybe a store card and credit card or a historical loan,” commented Steven Baillie, the head of loans at Sainsbury’s.

He added that consolidating non-secured debt using one of the firm’s loans “could save you hundreds”.

Meanwhile, several high street banks have announced they will no longer offer single premium payment protection insurance alongside loans.

Abacus Comment:
We do not agree that “Debt consolidation is always a good idea”.

Sometimes? Yes, always? No.

What about if the debts are growing  year on year and the debtor is consolidating for umpteenth time? If  no one ever took out a consolidation loan then they would be fewer people with debt problems in the UK today.

Consolidating debts into one loan gives debtors less room to negotiate should they fall into arrears. This  means a debt management plan or IVA is no longer an option.

A quarter of people taking out a loan to consolidate their debts go on to borrow more, according to a survey commissioned by Uswitch. (more…)

Do not be tempted to add more than need onto the loan, and head for the travel agents.

Many people consolidating debts into one, longer term loan, borrow a bit more and treat this money as a surplus than can by used for non essential spending. Do not be tempted to do this.

Consolidating debts into one loan should be only be done to make your monthly loan repayment lower so can afford to pay back your current debts. It should bot be done so you can afford more debt.

This is a path many have taken and it will only lead to financial misery when you can’t afford your monthly repayments, are 10s of £1000s in debt and you find yourself completely disenfranchised from most financial services.

Consolidating debt into one loan normal comes with a lower interest rates, but there is a catch.

Your consolidation loan may result in lower monthly payments, especially compared to store and credit cards. However the catch is that the term of the loan is longer and therefore you’ll be paying back more interest in total.

You may save money on a debt management programme. An added benefit of this is if you fall into difficulty when on debt management, you can renegotiate repayments to suit affordability. This may be harder if you only have one creditor and may put your home at risk if the loan is secured on your property.