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Is It A Good Idea to Borrow More When I’m Already In Debt?

If you’re in debt, borrowing more can seem like the only way to stay on top of your bills and payments. However, it can also cause you to lose control of your finances.

A man in a fish bowl reaching for money hanging in a fishing rod.

If you’re already in debt, then it may not be the best idea to take out more loans. While it can help with reducing payments and lowering interest rates, if you’re struggling to make ends meet already, borrowing more money might only add to your debt burden without helping you get back on track financially.

However, it’s worth noting that all debt and personal loans aren’t created equal. For example, the clever use of debt consolidation loans can help you to regain control of your finances. These types of loans often come with lower interest rates than other types of debt, and they can help you consolidate multiple loans into one loan with a single monthly payment. This can help make managing your debt more manageable and increase the likelihood that you will pay off all your debts in a timely manner.

Here at Consolidation Expert, we may be able to help you get a debt consolidation loan with bad credit to help you regain control of your finances and improve your credit rating.

What Does It Mean to Have Bad Credit?

Bad credit isn’t just a number; it’s a reflection of one’s financial history. It can be the result of various factors, from missed payments to bankruptcy. But what does it mean in the real world?

Having bad credit can make it difficult to obtain loans for large purchases, such as a home or car. It can also mean higher interest rates on any loan you do manage to receive. In addition, employers, landlords and even utility companies may view your low credit score unfavourably.

Understanding Credit Scores

A credit score is a numerical representation of an individual’s creditworthiness. It’s calculated based on several factors:

  • Payment history
  • Amount of debt
  • Length of credit history
  • Types of credit
  • New credit applications

A lower score can indicate potential risks to lenders, making it harder to secure loans or get favourable interest rates.

The Implications of Bad Credit

Having bad credit can have several repercussions:

  • Higher Interest Rates: Lenders might charge you more because they see you as a high-risk borrower. Poor credit loans are typically at a significantly higher interest rate, resulting in more expensive monthly repayments or a longer repayment period.
  • Loan Denials: Some lenders might not be willing to lend to you at all. For example, if you're looking to get a mortgage with bad credit, you're more likely to be denied. Even if you already have a property, and you're looking to remortgage with bad credit, you may be denied or face higher interest rates.
  • Difficulty Renting: Some landlords check credit scores before renting out their property. This means that, if you have a bad credit rating, you're less likely to be accepted for rental properties.

How Do Lenders Determine Your Borrowing Capacity When You’re Already in Debt?

When considering a loan application, lenders look at more than just your credit score. They want to know if you can repay the loan, and several factors help them make that determination. By looking at a range of information on your credit file, lenders can ascertain how much of a risk you are, and how likely you are to be able to pay them back.

Here at Consolidation Expert, we can often help people to borrow money for the purposes of consolidating debts, even with bad credit. We understand that your circumstances may have changed, and you might be in a better situation than when your credit score was determined. That’s why our lenders look at more than just your credit score when assessing loan applications.

Factors Influencing Borrowing Capacity

Lenders consider various factors, including:

  • Income: A stable income indicates you have the means to repay the loan.
  • Employment Status: Being employed, especially in a long-term position, can increase your borrowing capacity.
  • Existing Debts: Lenders will look at your other debts to ensure you're not overextended.
  • Financial Behaviour: Past behaviour, like if you've defaulted on loans before, can influence decisions.

The Role of Debt-to-Income Ratio

The debt-to-income ratio is an important indicator for lenders when assessing your capacity to take on a loan. Debt consolidation loans can help make debt repayment simpler and easier, freeing up money for other commitments or investments. However, if the debt-to-income ratio exceeds certain limits, it could put an individual at risk of not being able to manage their finances.

In many cases it is advisable to calculate this ratio before considering a debt consolidation loan. Working out this ratio will provide an insight into how much you can actually afford to borrow and still maintain financial stability. It is important not to overextend yourself financially as this can cause greater problems down the line.

When considering a debt consolidation loan, it’s also important to take into account any additional fees or charges attached so you know exactly what you are getting into. A good lender should clearly explain all costs and charges associated with the loan upfront, allowing for informed decisions to be made when choosing a suitable product.

The role of the debt-to-income ratio is an important one when deciding whether to take out a debt consolidation loan; understanding your own financial situation and being aware of potential risks should always be taken into consideration before taking on any kind of financial commitment.

How Important is Credit Utilisation?

Credit utilisation is an important factor when it comes to debt consolidation. Your credit utilisation ratio essentially measures how much of your available credit you are currently using. The lower the ratio, the better it is for your credit score and financial health in general. When considering a debt consolidation loan, it’s important to make sure that any additional borrowing is manageable and doesn’t exceed the recommended levels of credit utilisation so as not to incur further damage to one’s credit score.

It’s wise to also review existing debts before looking into a debt consolidation loan, as this will allow an individual to gain a complete understanding of their financial situation and give them a clearer picture of their options. Knowing the total amount to be consolidated and what kind of loan will work best for individual needs is important in order to make sure that they can pay off the debt within a reasonable timeframe.

Finally, it’s essential that one selects a lender with low-interest rates and fees so as not to exacerbate their financial situation further. Shopping around, comparing terms, and understanding the details of each loan to make an informed decision is key for successful debt consolidation. Taking these steps will help ensure that one’s credit score remains intact and they can start the process of becoming financially secure.

What's the Real Cost of Bad Credit Loans?

While bad credit loans provide an opportunity for those with poor credit to get funds, they often come at a cost.

Loans for bad credit often have significantly higher interest rates than standard loans. This is because lenders see individuals with bad credit as high-risk borrowers. Over the life of the loan, this can mean paying back a lot more than borrowed.

Beyond interest rates, bad credit loans can come with a range of fees:

  • Origination Fees: A fee charged by the lender for processing the loan.
  • Late Payment Fees: If you miss a payment, you might be hit with a fee.
  • Prepayment Penalties: Some loans penalise you for paying off the loan early.

These are just some of the reasons that many people in the UK may benefit from a debt consolidation loan rather than personal loans for people with bad credit. In many cases, you may be able to achieve a more favourable interest rate, and receive enough to pay off multiple debts at once.

How Much Can You Borrow with Bad Credit?

While bad credit can limit your borrowing options, it doesn’t eliminate them. Different lenders have different criteria, and some specialise in loans for bad credit.

Several factors can influence how much you can borrow:

  • Type of Loan: Secured loans, which are backed by collateral, might allow you to borrow more.
  • Income: A higher income can increase your borrowing limit.
  • Lender's Criteria: Different lenders have different criteria for determining loan amounts.

Here at Consolidation Expert, our lenders may be able to provide debt consolidation loans of up to £75,000 to help you regain control of your finances and simplify your monthly payments. In many cases, this could even help to lower the amount of interest you need to pay.

How Does Loan Term Affect Repayment?

The length of your loan can have a significant impact on your monthly payments and the total amount you repay.

Short vs. Long Loan Terms

Short-term loans often have higher monthly payments but are paid off quicker, which can mean paying less interest overall. Long-term loans might have lower monthly payments, but because they’re spread out over a longer period, you could end up paying more in interest.

Choosing the Right Loan Term

When deciding on a loan term, consider:

  • Monthly Budget: Ensure you can handle the monthly payments.
  • Interest Rates: Sometimes, shorter-term loans have lower interest rates.
  • Future Financial Goals: Consider how the loan fits into your long-term financial plans.

How Relative is Borrowing More When In Debt?

The decision to borrow more when already in debt is a complex one. It’s not just about the amount of debt but how you plan to use it.

Strategic Borrowing: Using Debt to Your Advantage

Debt isn’t inherently bad. It’s how you manage it that matters. For instance, if you’re £70,000 in debt with high-interest rates, borrowing an additional £30,000 at a lower interest rate to pay off some of the higher-interest debt might be a strategic move. It’s about leveraging debt to improve your financial position.

The Risks of Borrowing More

While there can be strategic reasons to borrow more, there are risks:

  • Higher Monthly Payments: Taking on more debt can strain your monthly budget.
  • Longer Time in Debt: It can take longer to become debt-free.
  • Potential for Higher Interest: If the new loan has a higher interest rate, you could end up paying more over time.

Of course, if you’re taking out a new loan for the purposes of debt consolidation, you should be able to get a loan with a lower interest rate, and even a lower monthly repayment. As you’ll only have one loan to repay, you can often expect to pay less per month.

Wondering Whether Borrowing More Is Right for You? Apply with Consolidation Expert Today

Whether you’ve done the maths, or you’re not certain whether a debt consolidation loan is right for you, apply with Consolidation Expert. We may be able to help you obtain a simple consolidation loan to help you regain control of your finances.

To discover if you’re eligible for a debt consolidation loan from one of our lenders, don’t hesitate to apply with Consolidation Expert today.

Representative 14.8% APR

We are a broker, not a lender.

Representative Example: Borrowing £15,000 over 60 months, repaying £355.28 per month, total repayable £21,316.57.

Total cost of credit £6,316.57.

Interest rate 14.8% (variable).

The lenders on our panel offer loans for 12-360 months, with rates from 4.7% APR to 42.6% APR.

The Representative Example is based on all loans paid out by lenders between 1st Jan 2022 and 31st Dec 2022.

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