I think many of us are in financial dire at the moment and wonder whether this would still be the case if we weren’t constantly told about recession and our poor loans situations (see article) all over the news.  So is it just me who thinks that the population will always react to what we are listening to? Take repossessions for example, last summer there was nothing major on the news, no real life scenarios about Mrs Smith having her property repossessed - why?

Well, I’d say because last year there was no sensationalism in that story whereas now there can be. We’ve been talked up into believing there will be a major increase in repossession (and indeed there is, and there will continue to be so), but I’m convinced as a society, we just conform and do as we are told to do by what’s being televised. Mrs Smith might well have been irresponsibly leant money to, but not all repossessions are down to irresponsible lending and instead might be due to a change in circumstance (with inadequate protection in place to cover these eventualities should they ever arise), and thus financial planning (in hindsight) is paramount.

The most vulnerable are obviously those who have had problems in the past, not minor historic defaults as many high street lenders will consider you a prime case on anything of a low amount and which can be genuinely explained. I’m referring to those who, when they took out their mortgage, had recently been subject to some form of adverse credit such as a CCJ, major default or some mortgage arrears. So is it a good time to start looking at mortgages if you fall into this category? Well the answer is ‘maybe’! Because if you’re paying the lenders variable rate then it could be that you are in fact being penalised, and if you’re on the bank’s LIBOR rate (the inter bank lending rate) then again this is higher than the Bank of England’s base rate (If you’re not sure then you can check your original mortgage paper work but most sub-prime lending was based upon the LIBOR rate). However, if you’re currently on a fixed rate scheme or if the mortgage you have is based on the Bank of England’s base rate then you are likely as well to stay as you are. I would however, consider your overall financial planning and any protection needs you might have. I have listed some links below to find out more about current mortgage schemes, rates and new products because of the latest interesst rate movements.

• Mortgage Quotes for ‘Prime’ Borrowers (ie No Adverse Credit History)
  CLICK HERE >>>
• Mortgage Quotes for ‘Sub-Prime’ Borrowers (Any sub-prime or adverse credit mortgage lender)
  CLICK HERE >>>
• Loan Quotes
  CLICK HERE >>>

So we’re over a year into the credit crunch now and heading into what some are calling a full blown recession.

I agree with them!! Already we’ve seen many mortgage lenders close their doors forever or cease lending completely, and the interbank lending has all but ceased too. So what is likely to happen over the next couple of years?

Well I’m no authority on how the economy will evolve but I do suspect it will get worse before it gets better. Watching the news last night (or it may have been the one show I can’t remember exactly) it was suggested that the so called recession we are entering may be more akin to a ‘V’ rather than a ‘U’. By that they mean a very quick ‘in and out’ recession and nothing drawn out like other recessions. This might well be true but let’s remember then that the banks problems started over a year ago and consumer lending virtually came to a halt in or around March this year.

That was followed by the the knock on effect of building sites closing down and the employment sectors within the associated trades began to decline. As far as I know, I wasn’t aware that the retail sectors were really affected yet, which would kinda run true when you look at the latest inflation figures of over 5%, so as we hear of these rises in unemployment (currently at their highest levels since the mid nineties if I remember correctly) what will come in the ensuing months when people stop spending on the high street.

Well, it’s a snowball effect that hasn’t even started yet. As you’re reading this you probably haven’t given too much thought as to what will happen so let’s start with Christmas, where I’m sure we’ll all go out, as usual, and spend like crazy trying to make our loved ones happy. No doubt the majority of us will put this spending onto some form of plastic with a view to paying it back in the new year.

Come February, when all the bills are well and truly in we’re likely to stop spending on luxury items, which will include going to the pictures, going out drinking, buying new clothes, and generally having a life. This is when the high street and retail trades will be hit and as such when the recession begins to make its appearance.

It isn’t always the best thing to take out a consolidation loan or mortgage for such occurencies so if you have debts owing to a number of creditors then perhaps it would be wise to speak with a specialist debt adviser.

So is there any such thing as poor loans or is this just a euphemism for people who are looking for a loan and have a poor credit rating?

I’m often curious to know why people looking for loans, particularly those with a poor credit rating looking for poor loans, find themselves on price comparison websites and expecting some form of realistic indication as to what is likely to be offered to them. When in all probability the results proffered would be completely unavailable, out of date, non-existent or worse, completely fictitious!

Take for example one major price comparison website that often advertises on the TV. I’m not prepared to mention their name here for obvious reasons but there is a section on there website that asks about your credit history prior to showing a list of possible results as to what you might expect to be offered.

The credit history referred to however is not checked by the website so they have no idea about your likelihood of obtaining any form of poor loans from the institutions displayed. How can they? They themselves are nothing more than a comparison site, they have no idea as to what ‘criteria’ the lending institution might use and furthermore, they are relying on very limited information given to them by you, in regard to your credit history but neglecting to consider something much more important which is your ‘credit score’ (which, by the way, can be obtained free of charge from ‘Credit Expert‘).

Poor loans are complicated because there are many factors which are used to determine whether you will be offered the loan, particularly if you do have a poor credit history. Let’s take a look at some elements that might be considered when the lender is thinking about offering you a loan, or to be more specific, poor loans.

• Are you a homeowner?
  The starting point for many lenders offering poor loans will be with this question. In the last few years there have been some lenders willing to offer poor loans to non-homeowners but with the current financial status the likelihood for being offered poor loans is somewhat reduced.
• Do you have any equity in your home?
  With the right amount of equity it’s fairly certain that someone, somewhere will be willing to lend you the money you need. However, poor loans require more equity than a loan application from someone with a good clean credit rating. The reason is obvious when you think about it, the risk is much higher because the likelihood is that you have some adverse history when it comes to repaying credit (though not necessarily through any fault of your own).
• Are your problems historic?
  Some lenders will look sympathetically on people whose problems were through no fault of their own, were due to some form of circumstance such as a marriage breakdown or other tragic event, or simply where the problems are historic and not, it must be said, major adverse events.

The considerations above are not exhaustive and are not meant as any representation as to the citeria that lenders will use - but I’m not aware of any lender that does not use them. That said, the actual rate you will be offered for any poor loans application will vary from lender to lender and this is where different institutions come into their own.

A good example to give you in respect of lender’s criteria would be one application I received earlier this year where the client, who shall remain unnamed, had a mortgage with a subprime lender, an arrangement on a very large unsecured loan, and one or two smaller credit defaults more recently. Now many financial advisers’ would simply look at this and pass the case on to a sub prime specialist, or poor loans section within the lending institution chosen.

However, knowing the criteria well, and having established a great relationship with them I was able to place this application with the Abbey on their high street rates. Needless to say this client no longer needs to be pushed down the poor loans route anymore (providing of course that all payments are maintained).

Going back to the point in question, and in contemplation of the questions asked on the price comparison website (in relation to credit history)  it is clearly not the case that the Abbey would have been presented to my client had the adverse entries been disclosed. This is why I get confused about people with known credit problems, and therefore looking for poor loans, as to why they would ever seek information from a website that is unregulated, misleading and dare I say, incorrect.

If you are looking to obtain rates on financials then it is near on impossible to get accuracy directly from a website because the rate you will be offered is determined by the circumstances surrounding your application. If you are chasing the best rates then an adviser can often influence the lender, or simply present your application better than you could do yourself.

Resources:

• Obtain your Free Credit File from Credit Expert
• Loan Quotes for all applicant types including poor loans applicants.
• Mortgage Quotes for all applicant types including poor loans applicants.
• Specialist Debt Advice for people struggling to repay a number of debts.

I recently found the following article doing the rounds and wanted to acknowledge that whilst it was not intended for the UK audience, there is common ground between our two states:

Millions of people every year get into real financial difficulties. It is such a common occurrence that an entire industry has been developed to deal with the problem. Every year the number of people who seek consumer credit counselling and debt consolidation loans increases.

While the problem of being too deeply in debt is a commonality, the solution to the problem is not one-size-fits-all.

It is amazing how becoming too deeply in debt sneaks up on people. They suddenly will find themselves drowning in debt and have no idea how they got themselves into the position. The way into debt is always the same. The reasons may be different, but the process is the same.

People slowly take on more debt obligations than they can meet. That is the way in. The way out is more complicated.

If you are deeply in debt, looking for a way out, and considering a debt consolidation loan, there are a few things that you need to know before you sign on the dotted line.

A debt consolidation loan will cover only your unsecured debts. Your secured debts will not be included in a debt consolidation loan. Unsecured debt consists of your credit card debt. Unsecured debt consists of everything else. Your mortgage, your car payments, and your instalment loans are all secured debts and will not be included in the total of a debt consolidation loan. Only your credit card debt is covered in a debt consolidation loan.

When you have worked your way through the consumer credit counselling and you and your counsellor have agreed that a debt consolidation loan could help you, you may be shocked to find out that all of your accounts are going to be cancelled. You won’t be able to use the credit cards that you have now again, and you may not apply for another credit card until the consolidation loan is paid off.

Milos Pesic is a professional Debt Management consultant who runs a highly popular and comprehensive   Debt Consolidation web site. For more articles and resources on debt management, debt consolidation programs, free debt counselling and much more visit his site at http://debt.need-to-know.net/

If you are thinking about taking out debt consolidation then this article will explain the debt consolidation pros and cons in a way that might make you think twice.

Debt consolidation is the process of taking out a new loan or other form of credit agreement to repay more than a single debt that you may have. Repaying just a single debt would be better described as refinancing than debt consolidation. Pros and cons of debt consolidation is my intended point of discussion throughout this article and I would not only welcome, but invite you to comment should you require clarification or advice on any matter.

There are a number of various types of credit products that can be used for debt consolidation and these include, but are not necessarily limited to:

• Unsecured loans
• A further advance from your existing mortgage lender
• A secured loan from a provider other than your mortgage lender
• A remortgage

In essence, and in most instances, ordinary people like ourselves often consolidate a number of shorter term debts, usually credit card debts, onto an unsecured loan with the intention of cutting up the card or terminating the agreements we have with the credit card companies. (I can’t help but smile right now as I’m thinking about the number of times I’ve done this). A major drawback of us doing this of course is that we will almost certainly run up those debts again without ever carrying out our original intentions of cutting up the cards. Once at this point we begin to look at other more serious debt consolidation methods, those that usually require some form of security over our property.

Many of us would undoubtedly benefit from debt consolidation if we did so on better terms than the aggregated multiple agreements already in place. By this I mean that the new loan or credit agreement comes with a lower interest rate, lower monthly payments and is easier to maintain in terms of dealing with just a single creditor instead of the multiple creditors currently in place.

Unfortunately debt consolidation, pros and cons of which must always be considered in detail before making the decision, can often incur a number of charges and set up costs such as broker and survey fees. Our decision to proceed with an application is often clouded by what we can see in front of us (such as the monthly payment) and our situation is not helped by our reluctance to investigate or research the market further. When sourcing, the APR is vital as this tells us what the ‘actual’ interest rate is including all those additional charges that may be incurred as part of the application process.

Extending the loan term isn’t always a good idea unless we desperately need to keep down the monthly cost. The term is important for two reasons, namely that extending a loan term on a predetermined APR will increase the total amount payable, and furthermore that the term of the loan must be sustainable for the purpose of which it is taken. For example, if you were to borrow £5,000 for a new car that you know will need to be replaced in three years time, taking out a loan over five years would be a poor decision because in three years time you would either need to borrow even more money on top of your existing loan, or fail to replace the car at all. So what are the debt consolidation pros and cons?

Well there are a number of advantages and disadvantages to taking out a debt consolidation loan, but to clarify they are:

Pros:

• They can often reduce your immediate outgoings which could free up the cash you need to enjoy life more.
• Your consolidation loan would be to a single creditor which means you only need to make one single payment each month and therefore your finances are simplified somewhat.
• Providing you have carried out your research correctly you could pay less interest overall. The aggregate interest, and the term of the new loan should lowered if possible, but where the term is extended then you need to find out the overall cost of the new loan and compare that to the overall cost of your old credit agreements.

Cons:

• By consolidating you could be putting your home at risk if you are securing the new loan against your property. In law, where you fail to keep up repayments on a mortgage or other secured loan then the creditor are within their rights to apply for a possession order.
• The set up fees could be costly. Where property is being put up as security it is likely that the new lender would want an official valuation of your property. This comes at a cost and if you couple this with any arrangement and broker or any other ancillary costs then the overall cost of the new loan may not be worthwhile.
• If you are extending the term of your borrowing then you could end up paying substantially more in the longer term. Your immediate payments may very well be reduced but consider the impact on your financial future as well.
• You might be tempted to take out more than you need! This is one of the most common mistakes and should be avoided at all costs. Ok, so the holiday might well be needed, or perhaps your car is a little older than you’d like it to be but nevertheless, these luxury expenses should be avoided.

I’d also like to consider a different method of consolidation which has become more common and that is zero percent credit card balance transfers which I believe to be quite a good way of transferring debts when used correctly. You need to forget about using the credit card cheques that you may be given and cease all spending on the new card unless there is some material benefit such as reward points or loyalty benefits. The interest is usually much higher on purchases and cash withdrawals (which the cheques would be classed as) so caution is advised. You should also weigh up the benefit of paying the newly implemented transfer fees - but the interest saved is often significantly more than the cost of acquiring the new card.

So there you have some considerations before going out and getting yourself a debt consolidation loan or mortgage. Although it can often be a welcomed break in your financial outlay it would be wise to consider the reasons behind the need to consolidate and whether a consolidation loan is the right thing to do - or whether you should speak to a debt specialist. Of course, if you are contemplating consolidation for second or even third time then it might be better to seek information from a suitably qualified professional.