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Original poster

Is it EVER a good idea to get a lone?

15 replies

zinggorilla · 20/03/2011 18:49

I am basically living hand to mouth atm. I have an overdraft and I am on benefits with a part-time minimum wage.
I have an Isa which gets £5 a week but I can't even afford to save that really.
I canb't pay off my overdraft.
My bank have offered me a loan. Ok the interest will be greater than teh overdraft but at least it will free up a bit of money and I won't live hand to mouth. I will be careful with it. It will just free me up until I get a full-time job.

Is it a bad idea? My bank are great with me normally.

OP posts:
Original poster
zinggorilla · 20/03/2011 18:50

I meant to say that the loan will pay off teh overdraft and allow me to pay my bills on time until I get a better job. It's the not paying the bills on time that gets me. I only intend to loan £2000. The amount I pay back each month is dooable.

OP posts:
ethelina · 20/03/2011 18:53

Can you not just increase your overdraft if the loan is higher interest?

ethelina · 20/03/2011 18:54

I mean, it just seems to me that you would be swapping one debt for another which costs more to pay back in the long run.

nannynick · 20/03/2011 20:27

What are the interest rates involved? Overdrafts can be quite high interest, whereas a loan may be quite low or could be quite high.

You need to look at total cost over the period of the loan. Also check small print for what happens if you miss a payment.

Why does the ISA get anything? Any money you have should be used to pay off a loan first, before going into savings in my view (excluding paying off a mortgage as you hope the house price increase would pay that off). Just my view though.

nannynick · 20/03/2011 20:28

What security are you using to underwrite the loan? Or is it an unsecured loan?

Original poster
zinggorilla · 20/03/2011 22:55

I'm maxed out on the overdraft and as soon as money comes in it goes back out again so no hope of paying it back.
I know I will end up paying back more in the long run but it will help with cash flow right now considerably which will enable me to do stuff like pay bills on time rather than a week late due to dodgy cash flow.

OP posts:
nannynick · 20/03/2011 23:21

Are you saying something like:

Overdraft £1000
Loan £2000
So beginning of month 1 you have £1000 plus your salary. So can pay bills including loan payment.

What happens on month 2, 3, 4, 5 etc? Where does the money come from to pay the loan? Or will your salary now pay all your bills including the loan payment?

BertieBotts · 20/03/2011 23:40

I wouldn't in your situation. A better job might not come along any time soon and you might end up worse off - the loan payments and the monthly shortfall (and any more that it ends up as you relax slightly) are effectively being paid out of the loan itself, if you think about how much that is likely to come to, how long will your extra £2000 last? Especially as effectively it's only an extra £1000.

Do you bank with Lloyds? This is how my ex got into financial trouble. They kept offering him loans to pay off his overdraft, he'd take them, his payments got higher, he'd relax and he'd be back in the same situation again. With debts this time. So they'd offer him another until by the time I left he was in £10,000 of debt. It's frighteningly easy to do.

Have you looked at www.moneysavingexpert.com? Start on this section: www.moneysavingexpert.com/cards/

BertieBotts · 20/03/2011 23:42

Look at the super balance transfer article - it's slightly hidden but might be worth it if you're working.

cat64 · 21/03/2011 00:04

This reply has been deleted

Message withdrawn

Monty27 · 21/03/2011 00:16

OP it doesn't sound like an entirely satisfactory solution to me. Look at ways of cutting your costs down, this is going to increase your costs. Shop around too.

Monty27 · 21/03/2011 00:16

*the loan will increase your costs Blush

TheSecondComing · 21/03/2011 00:22

This reply has been deleted

Message withdrawn at poster's request.

BertieBotts · 21/03/2011 00:45

Ah, just re-read your OP and seen you have an ISA. In that case this article from MSE might help.

Should I repay debts or save?

Chil1234 · 21/03/2011 07:32

I agree with the person who suggested contacting the CAB. If you're struggling to meet day to day expenses, then you have a debt problem and could benefit from some professional advice. It would be a mistake to pay off an overdraft with a loan that costs more interest, for example. A loan that charged less interest than the overdraft, could be a better option. If you have savings in the form of an ISA then use those to bring down your overdraft or pay your bills.

Then really take a hard look at your income vs outgoings and see if there is any area at all that you can trim. Be really brutal about what expenses are necessary and which are non-essential. Make paying off you most expensive debt your priority.

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