Will Lenders Agree To Lower My Monthly Payments?
As time and circumstances change, what was once affordable can become a millstone. No matter whether it is a long term illness, redundancy or just a change of personal circumstance that drives it; if you have insufficient monthly income to pay all the bills it could be time to look at ways to reduce some of those obligations.
The first step is to complete a full and honest budget of all monthly income and expenditure. And don't forget to allow for those infrequent bills like car road tax, TV licence or telephone bills. Once you have a clear picture of what you have in terms of commitments and income, then you can start planning how to reduce some of the variable costs like loan repayments.
It is crucial that you continue to make payments on time so as to keep your credit history as clean as possible. This will make your proposition to lenders far more appealing than if you have started to miss payments since this will automatically show on your credit history report.
Now you have a full and realistic picture of what you can afford each month in terms of payments you are in a good position to approach your lenders and discuss how you might change the payments to make them more affordable.
Think carefully about which loan repayments would, if changed, have the most beneficial effect on your monthly budget. What you are trying to achieve is a balance between paying off the debt in as short a period as makes sense whilst making sure that it is comfortably affordable. Where loans have a short period to run (say less than 4 months) it will not usually be worthwhile trying to change their payment profile since there are likely to be fees involved that may outweigh any benefit. However, if these are substantial payments then looking to re-schedule them over a longer period may have the desired effect. Equally, if you have very high interest bearing loans then asking to have them rescheduled may be very expensive in the long run.
If you feel that you can get back under control by changing one or two commitments then approach your lender and ask what can be done. This is best done on the telephone since there will inevitably be some discussion over options but you should always get a written quotation for any variation of payment terms discussed before you agree to them. Your lender is not under any obligation to vary the payment terms but most will accommodate a change that they can see will be to their advantage as much as it is to yours.
If the loan repayments you are looking to reduce are for your home mortgage then you should definitely make an appointment, where practical, to meet with your lender. Take in your budget and explain what you are seeking to achieve and they will listen sympathetically to your request. Once again, this is best done whilst you are up to date with your repayments as it shows that you are in control and thinking about your situation before it becomes a problem. Lenders do not like surprises – especially bad ones!
If you have a number of loans and there is no simple or easy way to reduce your monthly payments then it may be worthwhile looking at a debt consolidation loan. Here you will apply for a brand new loan and use the proceeds to pay off all your other creditors. This way you can reduce all your various monthly payments to one single amount over a sensible period and, provided your credit history is in tact, at a sensible rate. To do this you should get settlement figures from each of your creditors so you know what sort of loan amount you will need. If the total is over £10,000, you may need to consider a loan that is secured against your home (if you have that amount of free equity available). Therefore, one of the first ports of call may well be your existing mortgage lender to see if they will advance further money against the value of your house. This can be one of the cheapest and most effective ways of paying off debt in an affordable way. Be warned, however, that the payments may be low but the total amount repaid could be high since the repayment period is long.
Lenders will always be sympathetic to requests for a change in payment provided you are proactive, supply plenty of information on your personal circumstances and keep your account up to date at the time of the request. They will also help if you get into arrears but by then you will already be incurring late charges and have less bargaining power.