Refused Loan - don't know why?

[cian132]

Can someone offer any advice?

I earn ok money, but have got myself into a bit of debt with my credit cards, I can never seem to manage to make any inroads into paying them off. I owe €7600 so when UB sent me a letter to say I was pre-approved for a loan of €7K I decided to take up their offer.
They turned down the loan application as they said they didn't want to take on another debt, however they told me if the money was for a holiday or a car they would have no problem refusing me.
I am baffled, so I decided to apply to One Direct and they too have turned me down but their underwriters wouldn't give me a reason.

I am married, earning €48K p.a. husband earns €32K, we have no loans at all, mortgage is €206K over 20 years, have one child, childcare costs €500 per month. We both have overdrafts on our account, but loan application was a single loan application and I only use my overdraft in the last week of the month, therefore my current account is in credit 3 weeks out of every 4.

I am going to write to the Irish Credit Bureau, but realistically they won't revert back until the new year and I really wanted to pay off this blasted cards before Xmas as my repayments are approx €300 pm which all seems to go on interest, yet a loan for the same amount would only cost me €230.

Does anyone know why I was refused or does anyone know a bank who would take on these debts?

Thanks

 

[ClubMan]

I earn ok money, but have got myself into a bit of debt with my credit cards, I can never seem to manage to make any inroads into paying them off. I owe €7600...

...

I am married, earning €48K p.a. husband earns €32K, we have no loans at all, mortgage is €206K over 20 years, have one child, childcare costs €500 per month. We both have overdrafts on our account, but loan application was a single loan application and I only use my overdraft in the last week of the month, therefore my current account is in credit 3 weeks out of every 4.

I don't understand the above - particularly the underlined bit. You seem to be saying that you have no loans but you do have significant (although not critical on the face of things) debt. You should review your debts and rank them according to the rate charged and size of the debt and then deal with them in order of rank. Substituting high cost debt with something at a lower cost (e.g. using a short term mortgage top-up repayable over a shorter term than the bulk of the mortgage loan to clear outstanding credit card balances) can make sense as part of a once off strategy to regain control of your finances but you should be very careful that you don't get into a vicious circle of juggling debts while incurring even more which you will eventually have to deal with. Have you checked the debt management resources mentioned for tips on how to deal with a situation such as this by, for example, doing a budget, reviewing your finances/debts and putting in place a clear plan to deal with debt?

 

[cian132]

Hi Clubman

Get your point, thanks.
It's just when I made the applications over the phone to the two institutions they both asked if I had a personal loan, or a car loan or any other type of loan.
You are right, it's mad, I never think of my credit cards as a loan, which is in fact what they both are....
I will look into your link now, thanks.

I have cut up my credit cards, I just thought it would be cheaper to re-finance through a bank loan and pay it off that way

Thanks

 

[ClubMan]

You are right, it's mad, I never think of my credit cards as a loan, which is in fact what they both are...

Not only that but they are generally the most expensive form of credit short of going to non mainstream moneylenders!

I have cut up my credit cards, I just thought it would be cheaper to re-finance through a bank loan and pay it off that way

Credit cards and personal loans often charge double digit interest rates. Credit Union loans often charge high single digit rates. Variable/tracker rate mortgage loans are generally around 3% these days.

It might be better to look at perhaps doing a once off mortgage top-up (preferably with the top-up scheduled over a much shorter term than the main loan amount - e.g. a couple of years rather than a couple of decades) to clear any outstanding higher cost debts. What is the value of your property as the loan to value ratio (the size of the outstanding mortgage loan as a percentage of the property value) is a key criterion on which mortgage lenders will consider mortgage top-ups?

 

[cian132]

Hi Club Man

I know a mortgage top up is a cheaper rate of interest, but I don't want to go down that route as I don't like the idea of paying off my foolishness over 20 years. The loan to value ratio of the mortgage is ok, mortgage is €206K, house valued at €450K. However, I recently changed the term of my mortage from 25 years to 20 years as I got a bit of a payrise and put it towards this.
I recently paid off my car loan my paying an extra amount each month, now I just want to tacke my credit cards.

Thanks

 

[doctorEvil]

I'd be making an irate phone call to the bank manager if I was you.

The bank is basically trying to rip you off, they have no problem with your debt as long it is at credit card rates (14.9% or more probably) rather than 7 or 8% - or less if it is on a top up!!!

The other part of the top up would be to pay the extra off as if it was a short term loan rather than over the 20 year term.

 

[ClubMan]

but I don't want to go down that route as I don't like the idea of paying off my foolishness over 20 years.

That's why I suggest that you look at the feasibility of getting a top-up which is scheduled for repayment over say, a couple of years, while the current outstanding mortgage amount remains repayable over the original 20 year term or whatever is left of that. Many lenders will facilitate this sort of arrangement. Others may do so with a bit of negotiation. You could always threaten to take your business elsewhere and see how they react to that.

The loan to value ratio of the mortgage is ok, mortgage is €206K, house valued at €450K. However, I recently changed the term of my mortage from 25 years to 20 years as I got a bit of a payrise and put it towards this.

The low LTV and the fact that you previously reduced the term should mean that your mortgage top-up borrowing capacity is quite good. On a related note make sure that when you reduced the term from 25 to 20 years that an appropriate adjustment was made to your mortgage protection life assurance premiums. If not you may be owed money or may be able to save by arranging replacement cover if appropriate.

I recently paid off my car loan my paying an extra amount each month, now I just want to tacke my credit cards.

Well done. At least you are actively tackling your finances and getting them in order.

Sorry to labour the point but it's best to treat a mortgage top-up/consolidation to deal with other more expensive debts as a once off strategy and to take steps not to get back into onerous debt subsequently.