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Any who watch channel 'five' or any of the satellite channels, will know there's a massive number of companies who want to sell you some finance. Whether it be "nice people like Kimberly" [Norton finance] or "Where's ma scooo-ta" [Picture] they're all trying to flog you the same thing - a loan.
We're not just talking a little loan to buy a car, or spruce up your garden - they mean a "secured loan", or to remove the marketing-speak; a second mortgage. Basically if you default on this debt they're going to come round and sell you property and place your wife and children in work-house.
While I always thought of these loans were for the sort of people that didn't understand one end of a credit agreement from another, I couldn't shake the nagging feeling in the back of my mind we owed more money than we dared think about.
I'd often thought we weren't getting the most out of the monthly pay packets - between the 2 of us we were clearing more money than we ever had before, but we always ended up running into the overdraft - and some months the current accounts never once looked in the black.
So it was at this point I made a rough calculation of the totals of all the credit cards we had between us - and came up with around £20 grand. Ok, it's a lot; but manageable. Then I asked about our other loans which, staggeringly, totalled roughly £45k. That means we owe SIXTY FIVE thousand pounds between us? How the hell did we get here?
We'd made a few bum car choice in the past end ended up blowing a lot on deprecation - I had been propping up my business for years on my MasterCard and we live in a nice house full of nice things. Ok we've got a lot to show for it - but our monthly commitments, over and above the mortgage we're coming in around £1,200 a month and that didn't include actually repaying any of the credit card debt. Suddenly both "Kimberly" and the prospect of Dickensian work-house toil looked more attractive.
WHO TO CHOOSE?
As I already said there's plenty of choice in this market place, but you need to be a smarter cookie. Ignore the smiling people admiring their new car in the slick adverts and look at the bottom of the screen for a "TYPICAL APR". This lets you make a direct comparison between the companies.
Essentially the APR is a total of the loan, all charges, fees and interest. You then subtract the amount you're borrowing from the total and the divided what's left over the number of years. That gives you a percentage amount, per year over the life of the loan. And if you pay attention to the adverts you'll see APR's range from 6.0% to a not insubstantial 19.9%. So what's a typical APR? Well, we're into the murky field of risk-based lending.
RISK BASED LENDING
The trouble with us all being individuals, means we all do things differently. While some people would be atoning for their sins every time they went overdrawn by a penny, other people are happy to ignore those credit card bills for months at a time.
Essentially if you are a lender, one person is going to be a better bet than another. So rather than saying "I'm not lending to the like of you" they do what all good businesses do - make more money out of it. This means the higher risk you are - the high the APR and it'll cost a lot more money.
So how do you know what rate you're going to get. You don't!
You can check you credit report, but all that will tell you is the raw information. It's the lenders themselves that decide on the criteria they're going to use and it varies from lender to lender.
You can also use moneysupermarket.com to "get a personal risk report", we did and found it to be inaccurate [more on that later]. So the only real way to establish what APR you're going to get is to apply for a loan. And here's the rub: as soon as you apply for a loan that leaves a "footprint" in your report. Most lenders also count up your recent footprints as part of their risk equation - so the more lenders you apply to the worse and worse your credit score gets…
CHOOSING A LOAN
Now that we've established picking the right company is the key to getting a good deal, you can use the many price comparison sites to see what rates are out there and how much it's going to cost.
Prior to this point you MUST add up your all of your debts and work out what you need to borrow. Then decide how much you can afford to repay each month (realistically), then it's just a simple matter of tweaking the number of years until you find a deal that suits you.
After following the process through on moneysupermarket.com and completing their risk profiler it gave us a number of deals; the cheapest being 'Nemo' and the next one being 'First Plus'. Neither of us had ever heard of 'Nemo', but thanks to a big advertising budget and Carol Vorderman we'd both heard of First Plus.
They're also part of the Barclays group, which is who the other half banks with anyway, so the decision was made.
The 6.6% APR was an 'Exclusive Rate' and you had to apply through moneysupermarket.com in the first instance. You could fill in the details on screen and have someone call you back or call them directly on their 0870 number (up to 12p / minute then!).
The helpful lady on the phone told us that the First Plus loan was the one to go for - Nemo turned out that it only applied to people that we're borrowing up to 60% of their home's value. As we we're going for the full 100% value (110% maximum) we'd made the right choice.
The questions we're as you'd expect, how much do you earn, what to you want to borrow, what are you doing with the money, what's you house worth, how long have you lived there...inside leg measurement…
Then after all this was confirmed, she pressed the button and then said "I'm delighted to tell you you're loan application has been accepted". I'm now going to pass you through to an account manager at First Plus to complete the application.
FIRST PLUS ACCOUNT MANGER
We we're then passed to Martin at First plus; the first 10 minutes of the phone call we basically to re-do the figures we'd already done. Then came the news - you're rate is 7.9% APR? Eh? That's quite a bit more than the 6.6% we'd been expecting.
"Well" he explained "the 6.6% is for people that haven't missed any payments in the last 3 years and because you missed a payment on your Mastercard 2 months ago [while I was in hospital] and you've moved house in the last year that automatically disqualifies you."
This is exactly information we'd fed into the moneysupermarket.com calculator so it demonstrated their credit profile was about as useful as the proverbial front-loading fish tank. While this isn't a review of price comparison sites, this experience would demonstrate that it was pretty useless and you're probably better going to lender directly and ask them some searching questions BEFORE you apply.
After some arguing on our part (and a consultation with a supervisor) the rate came down to 7.3% APR. While not great, it was better than where we'd been 5 minutes ago - so it goes to show that some flexibility does exist if you're prepared to push for it.
The next part of the hour long phone call was to go through all of our debt, but in a nice way. At no time was their any suggestion that we'd been careless or reckless. In fact he made it clear that we were by no means alone in our situation. They did have all of our debts and repayments on the screen and wanted us to match it up. So we had to go through "we owe £10,000 to Barclay Card" and want to settle that one in full…all the way through until we were up to the full £65k.
There was also discussion of some complicated cash-back insurance policy - in the end we didn't opt for this as it was just too difficult to understand. They did send us two application packs; one with insurance and one without so we could decide which one to go for after wading trough the terms and conditions.
The very next day 2 large envelopes arrived adorned with liberal doses of Carol Vorderman. These came with all the documents to read, sign and return. You also get a pre-paid special delivery envelope (and a 1st class envelope) to return the pack.
There's a guide to filling out each form and a pen to make you feel better about signing your life away.
Now there were a few problems with the pack - where we had two copies of each piece of paper, we assumed one was to keep and the other to return; though for the life of us we couldn't find anything which stated this. Eventually we found it, in small type, on the back page, at the bottom "Copy to Keep". Don't why they couldn't have made this clearer?
Secondly there's also a consolidation form for you to fill in. The idea being that you fill in the details of all the lenders you're going to repay and they give you a cheque (made payable to the lender) so it's not so easy for you to blow the money and keep the debt. A good idea and responsible lending in action.
The problem was that one of our existing lenders was being difficult and refused to give us a settlement figure that lasted more than 24 hours - meaning any cheque would be out of date before it was written.
So we decided to phone First Plus for advice; which wasn't easy. The only phone number we had was out "account manager's" direct line. Great for the personal touch - but a pain in the bum if they're on another call, or having a day off, or at lunch….
Nowhere was there a "general enquiries" number. This meant we had to leave Martin a message and then wait 24 hours for him to ring us back, just to answer a simple question.
After this was all settled, we had the documents witnessed and returned.
SHOW ME THE MONEY
The documents were posted back on the Saturday - and by Wednesday next week we had a run of cheques. The day later, the remaining money was transferred into the current account for us to settle ourselves.
This was very quick, but they explained that it sometimes takes longer - as they have to get permission from the first mortgage lender (in our case C&G) for permission to grant the loan. While ours had no objections, other can drag their feet and it this could add an extra seven days to the process.
We'd also been advised to keep some of the settlement money back for a month, because although we were paying the credit cards in full (with the cheques) there would be some back-dated interest to pay on the next month statement. Good advice as there was an additional £300 to pay over and above what we'd totalled up.
While the First Plus loan isn't a fixed rate, they say it doesn't work like a mortgage; so just because interest rates change, it doesn't automatically mean so will our loan. So while this variable-ness is nothing to worry about, we will bear it in mind.
To make things easier you have to choose a repayment date - while it would be logical to have in go out the day after payday, the bulk of our money comes in every 4 weeks, rather than once a month, meaning the money appears in the account at different times each month.
THREE MONTH ON
Now that everything is settled in full and we only have 2 debts (this loan and the mortgage) I cannot begin to tell you how much easier it is to manage. We actually have money in the account at the end of the month, something we've never had.
All the credit cards have been cancelled, apart from 1 and we've even started saving for holidays and new cars in separate accounts. We're now out of the debt culture for good (and if that changes I'll eat my hat!).
I'm also very glad that we repaid everything. In the past we've consolidated debts before, but because there was still a bit owing here and there, it started to mount up again. This clean break was what we needed and I'm please that First Plus were there to help us.
I can see why they use Carol Vordeman in their adverts and in their literature. We all know how good she is at sum - and, in the end, it all added up for us.
**** UPDATE January 2008 **********
First plus wrote to use telling us they were increasing the rate of interest on our loan by 0.3% (which was back to the rate they offered us initially). We wrote to complain about this and they just sent a standard letter back.
We have now reffered the matter to the financial obusman for their comment.
Very comprehensive and detailed - full of useful advice and snippets of information that the ads and literature would never tell you; not just a review of First Plus, but an excellent starting guide to debt consolidation and money management (getting back on track) in general. Also a ray of hope for those who are finding it difficult to see the light at the end of the debt-tunnel.
P.S. To Ian (orrin31): The APR is a legally required indication of the overall annual cost of the loan, not simply the interest; therefore any fees must, by law, also be factored into the figure (it's a very complicated calculation!), which is why Rob mentions fees.