The Transfer Window for Loans

The Transfer Window for Loans – Finding the Best Deals Despite Bad Credit

If you have existing borrowing, you may be struggling to afford repayments or want to save money by transferring it to a better rate. In most cases, a balance transfer is a straightforward process, but it can be made much more difficult if you have bad credit or your financial situation is poor.

The good news is there are several steps you can take to reduce the cost of your existing debt and improve your credit score and financial standing. It is not necessarily easy, but it is rewarding, and you can take positive action today to move toward a brighter financial future.
Let’s explore loan transfers and how to find the best deal with bad credit.

What is Balance transfer?

Balance transfers are very common with credit cards. Most people will take out a credit card on a low (or 0%) introductory rate and as the term on the deal expires, switch to another credit card with a low rate.
By doing this, you repay the old credit card and transfer the existing balance onto a new card, extending the amount of time you have to repay the amount and maintaining the lower rate.
This is a great way to keep low cost borrowing accessible, however many people use it as a crutch, prolonging the time to repay the money and staying in a perpetual cycle of debt. Credit card companies understand that eventually, you will either spend too much to complete a balance transfer or your credit score will drop and prevent you from switching.
This means credit card companies know they will eventually get you caught on the higher interest rate – one way or another. When people do get stuck on the higher rate, that is where the companies make their profit.

Like credit cards, you can also consolidate debt or transfer balances from one loan to another in the same way. Loans are different to credit cards in the sense they already generate profit for lenders and the savings you can make by transferring are normally much smaller.
 

Should You Balance Transfer?

Balance transfers are a stop gap or a short-term solution to what could potentially be a long-term problem.
As mentioned, eventually you are likely to run into some form of difficulty and when that happens, the amount of damage you can do to your personal finances and credit score is high. This is especially the case if you are relying on credit cards to fund ordinary daily expenses.
If you are balance transferring, you should always have a clear way in which you can repay the full amount outstanding and get off the credit card merry-go-round. Failing to have a pot of money separately to repay your credit card debt can mean when the time comes where you are unable to transfer your balances, it bites hard. 

With loans, debt consolidation is normally the best way to approach refinancing. For example, if you have three loans of varying interest rates, it is best to seek out a single loan with a lower average interest rate than the three loans combined.
Doing so reduces your ongoing monthly costs and helps you manage the debt through a single provider. It also means if you run into financial difficulty, you will only need to discuss your financial situation with one lender as opposed to three providers to negotiate a solution.

What if You Have Bad Credit?
If you have bad credit the abovementioned issues can be exacerbated further. You may not be able to borrow enough to cover the cost of existing debt and you might not find a better interest rate. This is especially true if you took the initial loans when you had a better credit score.
This is because lenders use interest rates to reflect the risk of giving you money. Low rates mean the lender views you as low risk and higher rates typically denote a higher level of risk.

What is Bad Credit?
As you navigate through life, you build up a financial history. This history factors in how you manage your debts, whether you take out a lot of finance, and how you repay loans. Missing payments, borrowing too much, or failing to repay a debt in full will negatively impact your financial profile.
Credit reference agencies give you a risk score or credit score that represents your overall financial profile. If you manage finances well, your score will be higher and if you have poor money management the score will be lower.
 

How Can You Fix Your Credit Score?
There are several ways to fix your credit score. The simplest short-term solutions are to register to vote and repay any existing debts you have.
Repaying debts, however, is not necessarily an option, particularly if you have overextended yourself financially and cannot afford to repay them. In these cases, you will need to keep up with repayments and take a long-term approach to fixing your credit score.

The great news is you can get free help from StepChange, a debt management charity who have a range of services and dedicated financial advice for anyone struggling with debt. StepChange can point out shortfalls and advise you about how to repay your debt and ultimately improve your credit score.
 

What Will You Be Able to Do with a Better Credit Score?
A better credit score is liberating in many ways. Primarily, you will find you are better equipped to deal with your personal finances and most people with better credit scores do not rely heavily on borrowing.
You will also be able to get the best interest rates and financial products when you do need finance. This can be life changing, as getting a loan with a good credit score can save you thousands of pounds in interest payments compared to bad credit borrowers.
Essentially, that difference in cost goes back into your pocket rather than into a lender’s bank account.¨

Bad Credit Comparison Site
The golden rule is to only borrow when you absolutely need to. You should not borrow money for non-essential purchases, for example. Recently the first bad credit comparison website has been launched in the UK. It allows bad credit borrowers to find loans and credit cards and compare the interest rates.