This debt consolidation loan applicant has extremely poor credit. Her FICO score is between 550-570, and currently being investigated – hopefully upgraded to a FICO score at least over 600. As it is now any lender that approves a loan for our applicant will be demanding an APR upwards of 15%, and even as high as 20% depending on her recent credit history.

As you read this application for a consolidation loan to clean up high interest debt you will notice a few key items. The applicant mentions that she needs a second chance to get her personal finances under control. At CLF our editors have noticed that most consolidation borrowers have used up many second chances in the past and that is why they find themselves in dire straight, moving out of their house, begging for a very high interest loan that they hope they can pay off in time – the truth is that most consumers with really bad credit have been taking out second chance loans for years, and every time they consolidate their rising debts, they keep on spending, spending, and spending.

You can see how this is happening in this lending example when you read that she considers her debts “caught up” – and yet she still needs a consolidation approved again. The reality is that nobody needs a debt consolidation loan when they are caught up on all their financial responsibilities. This is what sends most lenders (private and conventional banks) running for the hills, and declining a loan application. It’s obvious that this would-be borrower is deep in high interest debt, and deep in denial about the state of her actual financial situation.

Now to be fair, you can see that she is fully aware that her credit rating and score are severely damaged, and it’s sad that it used to be a higher score which she called A+, but which is not an actual credit score rating. Credit agencies track your consumer history based on R1 to R9 ratings.

So enough scolding of the applicant – we need to provide her with some consolidation options. After you review the loan application you can review the cost of the loan in the two different options – all of this below. 

Type of Loan : Personal Loan – Debt Consolidation Loan

Why do you need a loan? : Before I had my daughter my credit score and financial stability was A+. After my daughter was born, things got rough and certain things had to be put on the back burner. Long story short - I was unable to meet my credit card statement minimum payments, doctor bills, car payments, house payment, regular bill payments, everything. I have now moved out of our house and moved into an apartment to help with saving money. Now that we are caught up, my credit is ruined and I desperatley need a loan to pay off credit card debt and hospital bills. I joined a debt consolidation company, but that only worsened my credit. I would like to just receive one loan to pay off my debts and make one lower interest payment each month.

How Much Do You Want To Borrow? : Between $9K – $10K

Length of Employment : Over 5 Years

Time at Address : Between 6 – 12 Months

Age : Over 25

Anything else that would help us get your loan approved : I understand that by looking at my credit report and history, that you may not be willing to give me a loan. I know that it looks bad. But doesn’t everyone deserve a second chance to prove that after bad times, you are still a responsible adult? That’s all I’m asking for. This is a chance to prove that I am a responsible person and just need a fresh start. I need someone to just take a chance on me and see that I CAN pay back my loan.

Sex : Female

Marital Status : Married

Ever Claimed Bankruptcy? : No – never

 What State and City is your primary home address in? : Redding, California

Have you checked your credit report in the last 6 months? : Yes

Would you consider your credit rating to be? : Poor

Collateral? : No

Down Payment? : No

Do you a have co-signer or co-borrower? : No

Employment Industry, Title, Experience, Background : Redding Insurance Company – Title is Senior Billing Coordinator

$10,000 Second Chance Consolidation Loan – 15% APR Over 3 Years

We’re going to round this consolidation loan up to the higher number of $10,000 dollars, and we’re going consider a FICO score that is lower than 600 – this gives us an APR between 15% and 20% depending on the lender that approves the loan. For the first consolidation loan we are dispursing at 15% APR. We are also doing a more unconventional payment schedule – weekly. Sometimes lenders will insist on a weekly payment for applicants with an extremely bad debtor history. The lender wants to make sure the debtor is paying them regularly and not getting reckless with their money again. Sort of like keeping the lender on a “tight leash”. 

Principal of Consolidation Loan = $10,000
APR on Loan = 15%
Length of loan = 3 years
Payment Schedule = Weekly

$10,000 Second Chance Consolidation Results in First Lending Option

Total Amount to be paid = $12,264.41
Total amount of interest = $2,264.41
Payments = $78.40

The total monthly financial responsibility on this consolidation is just over $313 dollars, paid 4 times at  $78.40. In 3 years time (36 months) the lender will be clear and free, and truly “caught up” on her debt, AS LONG AS she does not start overspending, or spending more than her income resource(s). Total interest is two thousand, two hundred, and sixty four dollars over the 3 year term. Fairly expensive loan to be sure.

$10,000 Second Chance Loan to Clear Up Debt – 20% APR Over 1 Year

For the second lending option that would be unconventional, but does happen from time to time when loan sharks and predatory lenders have entered the fray. For this loan agreement we will use the extremely high interest rate of 20% over the term of 1 year. These loan sharks want their principal, and most importantly they want their INTEREST (or vig if you please).  Here’s how it goes down. By the way – we are calling the lender a predator here, but there are actually APRs that are much higher than this lender’s.

Principal of Consolidation Loan = $10,000
APR on Loan = 20%
Length of loan = 1 year (12 months)
Payment Schedule = Weekly

$10,000 Debt Consolidation Results in Second Lending Option

Total Amount to be paid = $11,019.22
Total amount of interest = $1,019.22
Payments: $211.33

Here the $10,000 dollar principal is paid back quickly and the entire interest paid is over $1000 in the short 12 month period. As you can see, just over $200 dollars must be paid every 7 days, pulling over $800 dollars out of the borrower’s monthly budget. This is a pretty high bar to set when dealing with an applicant that is already behind the eight ball on her all her bills and payments.

We were unable to find a reputable lender for this applicant, and unfortunately she ended up using predatory lender that charged her the maximum legal APR on the loan.

As I footnote I want to point out that the applicant/borrower mentioned (in her application form submission) that her credit rating worsened after joining a debt consolidation company. This not may sound right to some, but it makes perfect sense. If creditors and credit agencies see that you have seeked a debt consolidation loan, then know that your personal finances are getting out of control, or is completely out of control. This does NOT mean you should avoid a debt consolidation because you are afraid that your credit rating will be damaged – the truth is that once your finances have gone astray you will HAVE to seek consolidation financing whether you like it or not. It WILL have to be done unless you win a lottery, or your monthly income increases dramatically.