Should I Get A Loan During The Credit Crunch?

Deciding to get a loan is a big decision at any time, but especially during an economic downturn allied to the credit crunch we are now experiencing.

The letterbox is full of offers for loans from banks and credit card providers. There are also plenty of TV and newspaper advertisements trying to persuade you that there is money to be had for that dream holiday or for debt consolidation loan. However, think hard before applying for any form of loan since the consequences of not being able to keep up the repayments can be harsh.

Look first at your income levels. Are you confident that they will stay the same or, maybe, increase. Is your job, or that of your partner, secure for the foreseeable future? Take time to work out a family budget to see where your current cash goes to on a weekly or monthly basis and how much left over you have to make the loan repayments. Make sure that you have some buffer in case your earnings reduce a little due to, for example, bonus payments not being made, overtime reducing or work hours being cut.

Consolidate your debt

So now you have looked at your budget and you believe that you can afford a loan for that new kitchen, car, and holiday or just toconsolidate other expensive and short term borrowing such as on credit cards. Where to now?

Do plenty of research on who is offering loans and on what terms. Smaller sums, less than £5,000, will probably be on an unsecured basis. That is, the lender will not ask for any additional security such as a second mortgage on your house. Loans above this amount and for a general purpose such as holidays or debt consolidation will probably look for some form of second mortgage as security. Make sure you have spare equity in your house so have a recent valuation and a statement of your current mortgage outstanding to support your application.

If you are buying a car or caravan or other major item, the dealer or store may well offer credit at the point of sale. Make sure to compare the rates and terms and look at the total amount repayable over the loan with a loan from your bank or other providers. Although it may be a convenient way to get a loan, it may not be the cheapest!

Hopefully, you have a good credit rating since this will assist greatly with your application for a loan. If you have missed payments on previous loans or have County Court Judgements against you, all is not lost but expect to pay a higher rate and put down a higher deposit.

Finally, you may be asked to enter into the loan agreement with your partner/spouse. Make sure you know what your obligations are since you will be jointly liable for any debts even if your partner is the one making the repayments.

Getting a loan during a credit crunch is not straightforward. Lenders are looking for good credit risks and with a steady and stable income and, maybe, some form of security or guarantor to make them feel comfortable that they can get their money back if you fail to repay. If you meet these criteria then getting a loan during a credit crunch is straightforward, if not, be prepared for more of a challenge.