Debt Consolidation with Peer-to-Peer Lending
Personal loans, debt consolidation loans and home loans were once the exclusive products of banks, but this is no longer the case. Those struggling with money problems now turn to companies like P2P loans, payday loans, family loans and Prosper in order to reduce monthly repayments and keep household bills in-check.
Secured Loans and Debt Consolidation
Having bad credit normally means that unsecured loans aren’t a realistic option due to the high APR. This means that many borrowers that are seeking debt consolidation opt for secured loans. Is it really a sensible idea to turn unsecured debt, such as credit card debt, small unsecured loans and personal overdrafts, into a secured loan?
Secured Debt Consolidation and Creditor Harassment
A secured loan provides collateral for a lender, providing it with far greater powers to recover debt in the event of loan default. It can lead to creditor harassment for up to 12 years in event of house repossession and resultant negative equity. Rather than get a secured loan, commencing a debt solution could prove to be a more effective alternative.
Whilst debt consolidation has too many negatives for those with bad credit, it could prove a useful option for those seeking to protect a good credit rating. Those that do have bad credit may be better served by choosing a debt Consolidation solution, such as an Individual Voluntary Arrangement or debt management plan.
Good Credit two major P2P sites — Prosper and Lending Club Loans
P2P loans are a peer-to-peer lender, which means that people lend to people. P2P loans offers good credit customers a low APR personal loan over 3 years. A customer can pay back their personal loan early should they wish. Unlike a payday loan, a P2P loan isn’t suitable for those with bad credit. Individuals that have missed payments or defaulted on a loan should seek an alternative source of finance.
No Credit Check Payday Loans
Payday loans are designed specifically for people with bad credit and don’t involve a credit check. A payday loan isn’t a debt consolidation loan, it is there to help people deal with a short term money problems, such as paying the rent or mortgage. The main problem with payday loans is the high APR so they should only be used in an emergency situation.
Get a Family Loan to Resolve Money Problems
Getting a family loan is a perfect solution for those with money problems, especially when bad credit is an issue. A family loan allows someone to borrow money from friends or family at a low APR, often interest-free. The only real issue is not being able to pay back the personal loan should further money problems arise.
Prosper Personal Loans
Specializing in US customers, Prosper offers personal loans to customers with average credit or a good credit history. Being a peer-to-peer lender, Prosper personal loans operate on a similar platform to P2P loans. Prosper are particularly useful to US customers as only homeowner loans are normally available to them.
Those experiencing money problems should always see if a family loan is possible before checking other sources of personal loans. People with bad credit will find that personal loans charge a high APR of 50-60% or higher in the case of payday loans. Good credit customers should use either an online loan comparison service or see if they can get a personal loan from peer-to-peer lender, P2P loans.
Is Taking out a Personal Loan for Home Improvements Sensible?
An unsecured personal loan can be an excellent way to perform home improvements as it can help to build home equity. However, it is important for those seeking to borrow money can afford the monthly repayments and have job stability. Avoid home improvement loans when bad credit is an issue.
Having access to personal loans can open up many avenues to a borrower, including debt consolidation, home improvements and even buying a car. Those with a bad credit rating may find that paying a high APR makes unsecured debt consolidation unattractive.
Doesn’t a Charging Order Turn Unsecured Debt into Secured Debt?
It is true that a lender can get a charging order and turn unsecured debt into secured debt. However, the process of getting a charging order is very involved and means that a lender has to register a County Court Judgment or CCJ against a borrower before this can even be contemplated. Should a borrower come up with a repayment plan, a charging order could be prevented by a judge.
Consider a Debt Solution before Getting a Secured Debt Consolidation Loan
Unless someone has a job that depends upon good credit, it is worthwhile considering a debt solution, such as a debt management plan, when experiencing money problems. Getting a secured debt consolidation loan could serve to worsen money problems, especially if the borrower fails to close down sources of credit that had been consolidated by a homeowner loan.
What If Your Credit Rating Isn’t as Good?
Even if a lender does agree to loan you the money, those with adverse credit will have to pay a higher rate of APR. You will normally need to be a home owner and your loan will be secured on your property. You will also need to have sufficient equity in your property.
There are some unsecured loans available, but most will attract a rate of interest in the region of 25%. If you are paying more attractive rates on your other credit agreements it is highly questionable whether you should consolidate.
What Type of Loan?
If you have the choice an unsecured loan should almost always be chosen for two critical reasons.
If you do encounter financial difficulties you can enter a Debt Management Plan or an Individual Voluntary Arrangement, particularly if you have gambling debts. It gives you a greater range of options should you end up in a position where you lose your job or your personal circumstances change.
As you aren’t utilizing the equity in your home, it will be easier to attain secured finance should you ever desperately need to. This gives you another chance should the unexpected happen.
Turning unsecured into secured debt is a serious business, but there are genuine reasons why it should still be considered.
A secured loan will normally allow you to get a better rate of interest. The reason for this is that the creditor is afforded greater protection.
Those with bad credit are unlikely to be able to get any other kind of loan. There may be no other choice.
You will be able to repay the loan over a longer period of time which means that your monthly payment will be lower and more affordable. It is, however, important to be aware that the longer the loan the more interest you will pay over the duration.
Consolidation loans provide people with simpler, more manageable finances. You can’t put a price on having a payment structure to your debt and knowing that in a certain number of years that debt will be completely paid off.
Seek Financial Advice
Before proceeding with any type of debt consolidation it is advisable to consult an independent debt advisor to make sure that the loan is right for your personal circumstances.