18 Feb 2008 04:33:57 | James Taylor
Martin Henderson is in a fix these days. Because of his failure
to repay a loan he had taken a few years back, he has been
adjudged as a bad credit case. And, in spite of much effort, he
has not been able to get a loan or a mortgage. Lenders do not
want to take risk by offering loans to him, and he is severely
in need of money.
This is not a single case. There are many who are facing bad
credit and the problems resulting from it is making their lives
difficult.
Failure to pay the debts in most cases is unintentional. Most
people are mainly concerned with the immediate relief that the
loan or credit will offer. They do not want to mar the immediate
relief by thinking of the repayment in future. They feel that
their present income is enough to meet these extra expenditures.
It surely is sufficient to meet the cost of repayments, until
the financial condition changes for worse, and it becomes
difficult to make the repayments on time.
Some creditors make the payment terms flexible for borrowers who
are going through financial depression. Others will wait to see
that the customer mends his ways. If not, then they report the
matter to the credit reference agencies. Credit reference
agencies monitor all actions of the borrower on his debts in
their respective credit file. The main credit reference agencies
are Experian and Equifax. These agencies record information
about the defaults on loan or mortgage.
The defaults being registered in the credit file has serious
repercussions for the borrower. This will impede the borrower
from getting loans in the future. County Court Judgement
registered by the County Courts keep the record of bad credit
for a period of six years. This can be reviewed if the customer
pays off the debts within a month of the judgement. A further
delay can make the judgement irrevocable.
Individual voluntary arrangements are another form of bad credit
that disqualifies customers from getting good deals in loans and
mortgages. Individual voluntary arrangements or IVAs for short
is a step that saves individuals the brunt of bankruptcy. The
individual or the official receiver, trustee or bankruptcy
courts can request the creditor for IVAs. Through this
arrangement, the debtor can sort out an arrangement for the
payment of the debt through a well-defined plan within a period
normally extending to 5 years. Since this is a legal
arrangement, both the debtors and the creditors are bound by it.
The failure by the debtor at any point of time gives right to
the creditor to take action against the other party. Even though
IVAs lead to the repayment of the debt, it tarnishes the credit
of the borrower. However, IVAs are suitable only for those who
believe that they can pay the debt in full by making small
monthly repayments. If not, or if the debt contracted is a
sizeable figure, then bankruptcy will be the only solution.
Though more painful as the borrower will have to lose most of
his belongings, this will free the customer of the debts in the
least time (two to three years is the normal time of repayment).
The bankruptcy courts negotiate the settlement of the debts with
the creditors, and make the payments after liquidating the
assets. The credit file shall however include the name of the
borrower among the bad credit cases for about 6 years.
So just as we plan our work schedule, it is vital to plan the
repayment of the loan or mortgage. A certain amount of insurance
paid along with the loan repayments, will assure that the loan
is paid in full. This is known as loan protection. Mortgage
protection is available similarly to ensure that the mortgage is
paid in full. These will add to the monthly cost but will offer
peace of mind.
Debt consolidation loans can help curb the menace of debts.
Though many lenders reject the loan application, some are ready
to take up the risk. These settle all debts incurred by the
individual through a single loan. However, one must avoid the
bait of taking debt consolidation loans at high rates of
interest. This will only save you from one danger, only to push
you into other.
Last but not the least comes the debt management options
undertaken by the individuals themselves. One must learn to live
by the limits. Taking too many loans or mortgages will only
worsen the finances.
So, the next time you plan a loan or mortgage, think twice.
Taking advice from independent advisors about the amount and
type of loan or mortgage will go a long way in improving your
financial health.
About Author :
James Taylor holds a Master’s degree in Commerce from JNU he is
working as financial consultant for 
