Imagine the following scenario…
You are having financial difficulty and you try to take out a loan, but due to your bad credit, you are unable to be approved for loan. Instead, the financial representative suggests you consolidate your debt instead, but then they determine that you don’t qualify for that either because you have some missed payments and they don’t want to take the risk.
So what can you do?
Fortunately there are other options other than to consolidate your debt with the bank, even when you have poor credit. Below are a few options to consider:
1. Borrowing money from someone else:
The best people who can help you get out of a financial rut are the people close to you—your
family and friends; It’s also the easiest way to get a loan. Borrowing money from someone you know is one of the best ways to borrow money because they usually won’t have the same requirements or make you qualify for a loan similar to a financial institution. If you do choose to pursue this option, it is best to arrange at a simple contract or agreement so that you are both transparent and on the same page as to the details of the amount being borrowed, how much is expected to be paid back, when the loan is expected to be paid, and if you are being charged any interest or fees etc. Even though using a friend or family is a great option when it’s available, usually it is very difficult to find someone that close to you who has the funds to loan you or who is willing to take that risk.
2. Have a Co-Signer:
If you have been denied a loan from a financial institution, it doesn’t mean you are entirely out of luck. If you can find someone with good credit, has large or valuable assets, and who is willing to co-sign the loan for you, most lenders will accept this. The trick here is to find a person who’s willing to co-sign for you and is someone that the banks or financial institutions will also want to lend to. You need to understand that co-signers are responsible for your loan. In the event that you don’t pay the loan, the lender will come after the co-signer for the balance of the loan.
With this option, if you choose to get a co-signer, you need to make sure that you understand that the co-signer will be held responsible if you miss any payments.
Here are some of the other routes you can take that won’t likely require a co-signer:
- Balance Transfers: A lot of credit cards offer zero initial interest rates for balance
transfers within a given period of time, upwards of year or two. So you would transfer your balances from high-interest credit card debt to lower, or no-interest cards or loans. By using this option, it allows you time to pay off as much debt as you can during a period of time when you’re paying no interest, or low interest, and you can usually save a lot of money.
However, in case you bad credit, you can usually still qualify for balance transfers if you can get a co-signer. Just remember…… if you choose to use balance transfers to consolidate your debt, just make sure you can eliminate or greatly reduce the debt within the low/ zero-interest period.
- Debt Consolidation Loans: You can get debt consolidation loans from a bank, a
finance company, or a credit union. You can use this type of loan to pay off almost all of
your loans. Usually a financial institution will consolidate all of your loans into one payment to simplify the payments for you. However, similar to some loans, if you have a bad credit score, you’re going to need to have a co-signer for this.
3. Get a Second Mortgage
If you’re a home owner, another way to consolidate your debt is to use the equity you have built up in your home. You can use this equity as collateral to obtain the loan and reduce the risk to the bank. What makes this type of loan attractive is the traditionally low interest rates. Often second mortgages are much lower in interest than traditional loans and offers you the ability to reduce the interest and cost of your loans. Once you’ve borrowed the money, you can use the money from the second mortgage to pay off your debts in full and then pay down the mortgage as per the terms of your new agreement.
Just remember, similar to a first mortgage, when you obtain a mortgage, you are pledging your house as collateral for the loan. So if you decide to take out a second mortgage, it’s crucial you are sure you have a steady income and have the ability to make your monthly payments. If you default on your payments, the mortgage company can take your home as you agreed to surrender it upon default.
Conclusion
Luckily, even if you have bad credit, you can still take out a loan or have access to various consolidation loans. Having a co-signer, getting a second mortgage, and borrowing money from family and friends are some of the most common ways to get a consolidation loan. To make sure you’re making the right decision, consult a professional to review your options in detail.
Paul J. Pickering and Associates Limited can help you determine if a consolidation loan is right for you in London, Ontario. We offer free initial consultations, debt counselling, debt management, consumer proposals, proposals and bankruptcy. Contact us today!