I Make My Credit Cards Payments But My Bank Doesn’t Want To Give Me A Personal Loan to Pay them Off
We noticed this situation several times: we have an individual who had $10,000 on his credit cards, they are all maxed out but he still pays the minimum payment on time. He is now starting to have a hard time paying them off and goes to the bank for a personal loan in order to consolidate his debts.
Unfortunately for him, the bank turns down his credit application. There is a logic problem: if he is able to make payments at a 18% interest rate, how come would he not be able make a payment on a personal loan at 9%?
Negative Net Worth
Making payments on time is surely a good thing to do, however, this is not the only criterion used by banks. If you have a negative net worth (more debts/financial obligations than assets), they might be reluctant to consolidate all your debts and take the risk on their side. A negative net worth shows that you are technically bankrupt. If your creditors were to claim their dues, you would not be able to pay them off and would be forced to declare bankruptcy.
Late payments in the past
You might be on time right now but there is a strong possibility that you missed a few payments in the past since you have so many credit cards and such high balance to pay off. Late payments are another sign that you might encounter difficulties meeting your financial obligation in the future.
Maxed out credit
If all your credit cards show maxed out credit this is another sign that you are having problem managing your revolving credit. Therefore, your credit score will drop and banks will not lend you anymore money. The problem is that banks often work with trends and statistics. Their experience in credit showed them that people with maxed out credit cards will continue their spending habits after their consolidation. They will then show more maxed out credit cards two years after they did a consolidation loan.
In order to get a personal loan to consolidate your debt, you must show good credit management abilities. Most people ask for a consolidation loan when they can’t afford to pay their credit cards. Don’t wait that long, apply now while you still have a good credit bureau.
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Money Minder on November 27th, 2008
When I was a banker, I underwrote a lot of loans. Banks look at debt consolidation as risky for them. If the bank is only currently exposed to a small percentage of the client’s debt through one credit card, their position is safer than if they were to grant the loan and take on the risk of all the outstanding debt with all the creditors. This is more true in the current lending environment than ever before.
Clients don’t usually understand this. Logically they think it makes sense that the bank would want to help them lower their payments and therefore ensure that the payments continue. This is only true if you are consolidating several debts which all have the same lender (i.e. a credit card, unsecured line of credit and loan already with the same institution).