Should I take out a massive loan for no reason?

Carpe Natam

[FYI, not entirely sure where this fits into boards - feel free to move it if I've posted in the wrong place. Also, not my first post, I just don't want people to be able to find out salary info about my employer].

My situation is that I work in a salesy type role; wherein the first six months I don’t really receive commission because it pays for my training. I’m trying to figure out whether I should take a big loan out to pay for my lifestyle during my first year.

Beyond that, it’s accelerated commission, which basically means if I sell a product to a company that costs 400 euros a day, my company’s profits would be about 60 euros a day, and I would receive 24 euros (40%) of that, per day.

The problem is that it’s tiered thresholds, meaning that I only get 10% (15K per quarter), 20% (20k per quarter), 30% (30k per quarter) and 40% (35K+ per quarter). So you can imagine how my monthly earnings will start quite low (Around 2k net per month) and then become substantially higher, but it could take over a year to get to that bracket.

Backstory done. Now my question.

I’m only 20 years old and I’m looking to buy a house (or at least get a mortgage) by the time that I’m 25; my only problem is that I’ve always made pretty good money and never had any reason to take out any loans/credit cards of any sort and therefore have no credit rating.

I’m thinking about getting a large loan (5000 to 10000) simply for random expenses, it would make a massive difference to my life having that volume of money.

Or, would I be better off getting a credit card? I’m not entirely sure how credit ratings work so if anyone has any suggestions, I’d appreciate them!

Cheers!

homer911

You want to borrow money to fund your personal lifestyle based on an unguaranteed income, just to build up a credit history??

Dodge

Oh. My God.

Carpe Natam

homer911 wrote: »

You want to borrow money to fund your personal lifestyle based on an unguaranteed income, just to build up a credit history??

Doesn't sound great, does it?

I took a 20k pay cut when I took my current job, if it wasn't for my training programme thing, I would already be close to the highest level of threshold.

What I'm saying is, owing 5 or 10k won't really matter in 18 months; but it would make quite a difference now. And, I need to build up some sort of credit history if I'm planning on taking out a mortgage. If that isn't the best way to do it, please advise!

ytpe2r5bxkn0c1

Don't be crazy. Live the lifestyle when you have the money, not on an unfulfilled expectation of a certain salary.

professore

I see your point about the credit history though. Banks stupidly do look for it. So if you really must get a loan, I'd suggest to save up the money, get a loan for that amount, and then use the saved money to pay off the loan, on time every month. Probably a small loan would do. Get a fixed rate so you can pay it off in a lump sum if there is an emergency. Always risky to depend on future earnings, anything could happen, break an arm, get fired etc. so you wouldn't be able to work.

Carpe Natam

professore wrote: »

I see your point about the credit history though. Banks stupidly do look for it. So if you really must get a loan, I'd suggest to save up the money, get a loan for that amount, and then use the saved money to pay off the loan, on time every month. Probably a small loan would do. Get a fixed rate so you can pay it off in a lump sum if there is an emergency. Always risky to depend on future earnings, anything could happen, break an arm, get fired etc. so you wouldn't be able to work.

This is the kind of answer I'm looking for.

When I said, "for my lifestyle", what I meant was "pay for a professional diploma that would make me better at my job."

Credit history is definitely the big reason I'm seriously considering doing this. Does it look better if you take out a massive loan and repay it substantially early, or have a credit card? I honestly don't know and Google isn't being particularly helpful.

Kensington

You're unlikely to get a loan for anywhere near €10k when you're netting €2k a month, have recently changed jobs and have presumably not cleared a probationary period in your new job.
Especially since as you readily admit you will not be using it to fund something tangible like property or a vehicle on which the bank will be able to secure the loan against.

Instead, open a savings account now and start putting away each month what you expect your monthly mortgage repayment to be (or as close to it as you can afford). Don't ever withdraw any money from this account. This will demonstrate to the bank that you are able to commit to your mortgage repayment amount each month over an extended period of time. Double bonus in that you've also built up your house deposit!

If you have a credit union account then maybe at a push take out a loan against your shares.
Or open one now, build up a savings base, then borrow against those savings over a fixed time period.

Do not however take out a loan willy nilly, especially on the basis of what you might be earning in 18 months time. You don't know how your situation may change between now and then and you could do far more damage defaulting on a random loan.

Rackstar

Celtic tiger reincarnation...

Youngblood.III

Are companies allowed charge for training relevant to your job....that would be unusual

Dr.Internet

Rackstar wrote: »

Celtic tiger reincarnation...

I had to double check the date on the OP.

dudara

Moved to Banking & Insurance & Pensions - please post helpfully, or don't post.

dudara

turbot

Don't do this! Really - If you're 20, build good financial habits, don't use credit to spend money from the efforts of your future self.

Instead, learn about finance, set up all your bills on direct debit, save 10-20% of your income, live on the rest. That structure will gear you towards being wealthier in the future.

godtabh

too build up a good credit rating build up lots of savings and show you can save. Start with the CU. They will loan you the equivalent of what you have in savings almost straight away.

Celly Smunt

turbot wrote: »

Don't do this! Really - If you're 20, build good financial habits, don't use credit to spend money from the efforts of your future self.

Instead, learn about finance, set up all your bills on direct debit, save 10-20% of your income, live on the rest. That structure will gear you towards being wealthier in the future.

This. Get yourself a savings account and direct debit into that and don't touch it. 10-20%, more if you can.

Credit rating wise, there are other ways of building a credit rating rather than taking out a big loan.

Lux23

How do you build up a credit rating other than borrowing?

Galadriel

Carpe Natam wrote: »

This is the kind of answer I'm looking for.

When I said, "for my lifestyle", what I meant was "pay for a professional diploma that would make me better at my job."

Well which is it one? lifestyle and training are two different things.

Dodge

You've already dropped from a 60k job to a 40k job (2k a month net) and you're only 20. This despite not knowing a thing about finance. So you'll be grand without a credit card

(or you're spoofing)

seamus

Youngblood.III wrote: »

Are companies allowed charge for training relevant to your job....that would be unusual

It would be very unusual, however in this case that's not what they're doing. It would appear that salespeople don't earn commission during their probation or training periods.

I'm not sure if that's standard or not, but it sounds like a good idea, and perfectly legal.

How do you build up a credit rating other than borrowing?

Well, you can't. But you don't have to take out a huge loan either.

Get a credit card with a small limit on it (< €1000). Use it to buy stuff on the web, pay it back on time.

Take out a small loan of a couple of grand, pay it back over 12 or 24 months. Just enough so the repayments aren't onerous and you can continue saving while you pay it back.

mattaiuseire

As someone already said, highly unlikely you will get a large loan, not necessarily all based on your current income (but does make quite an impact), but lenders will look at potential borrowers' circumstances. For example, someone who has been employed in the same job for the last 5 years and has lived at the same address for the last 4 years will have a much better chance of obtaining a loan compared to someone who has a history of chopping and changing jobs and addresses.

If you have a good relationship with your bank and have a history of regular income you can build up a credit rating by simply asking for an overdraft. A small overdraft which you pay back on time every time every month. Again a credit card with a small limit of which 100% is paid each month on time will mean your credit rating is marked well and you can start to build up your credit history.

A couple of years down the line you will look like a very good prospect to potential lenders.

Any financial institution that's a member of the ICB(Irish Credit Bureau) that lends you money will record your repayments on your credit file.
Don't confuse that with any company that lends however; for example in the UK, payments on your mobile phone contract with Vodafone will be recorded on your credit file whereas the equivalent in Ireland will not - and that's because Vodafone are not a financial institution therefore they're not a member of the ICB, therefore whether or not you make payments on your bill pay contract won't show or nor have an adverse affect on your credit rating. Unless of course a debt like this went to court and a judgment was obtained against you, then this judgment would be recorded and would show up - anyway I digress...

I wouldn't advise anyone to get a loan unless you absolutely have no other choice - by the sounds of it you don't need it. And although I do understand it would make your life so much easier right now, the chances are you won't get the amount you want anyway.

Best of luck with the job.

Carpe Natam

Okay, I tried to be kind of sarcastic in my OP.

Here’s a more bare-boned version:
• Got two job offers. One with a base salary that was 20k higher with no commissions, and one that had ridiculous OTE commissions. I picked the job with more potential earnings.
• Been working there for five months, coming to the end of my probation period.
• In terms of previous earnings, I was working in The Netherlands earning approx. 37k gross.
• I live quite well, have enough money to pay for everything I need. I save 5-10% of what I earn.
• OTE in three years (because these commission are passive and therefore not up and down like normal commission jobs) is approx. 85k per annum.
• This isn’t some fantasy
• Looking to get a part time diploma and make some large short term purchases
• Looking to improve my credit rating to the point where I can buy a house in five years.
• What’s the best way to do this? I’m trying to make sound financial decisions here.

Dodge

Carpe Natam wrote: »

Okay, I tried to be kind of sarcastic in my OP.

You don't really understand sarcasm, do you?

Save up, and buy a house when you have the money. Don't worry about the rest

mattaiuseire

And let me know if there are any jobs going.

Carpe Natam

Dodge wrote: »

You don't really understand sarcasm, do you?

Save up, and buy a house when you have the money. Don't worry about the rest

I don't see how this is such a difficult question?

Unless Ireland is completely different to every other country I've lived in

Good credit score = Lower interest rates, smaller deposits.

No credit history = Low credit score

Low credit score = Higher interest rates, higher deposits.

Paying credit card bills on time = improves credit score

Paying loan bills on time = Improves credit score.

PaulM1977

Banks don't just look at your previous credit history, if you can show that you are good with your money i.e. by putting away a monthly savings amount, then this will be just as good as showing a repayment history when it comes to loans. They will also look at your employment history, so if in 5 years time you are with the same company(this would also be looked upon favourably) and have been saving regularly in to a savings account for this amount of time, then mortgage lenders will consider your application to be a strong one, assuming there are no credit history issues in the meantime...

Thanks,

PaulM

Dodge

Carpe Natam wrote: »

I don't see how this is such a difficult question?

Unless Ireland is completely different to every other country I've lived in

So why are you are asking well travelled 20 year old?

seamus

Carpe Natam wrote: »

Unless Ireland is completely different to every other country I've lived in

It's a possibility.

Good credit score = Lower interest rates, smaller deposits.

No credit history = Low credit score

Low credit score = Higher interest rates, higher deposits.

No, not really. Banks won't offer lower interest rates based on your credit history. They'll vary the amount of money they're willing to give you, not the rate that you get.

You're right in that no credit history makes you an unknown, but it doesn't necessarily mean you'll have a low credit score. If you apply for a loan with the bank that holds your current account, your current account history with them (deposits & withdrawals) will have a big impact, even if you have no credit history.

Paying credit card bills on time = improves credit score

Paying loan bills on time = Improves credit score.

Again, not really. Unlike the US where there's a "standard" scoring system, most banks will have their own in-house scoring system that will take your credit history into account when making the calculation.
Yes, having a good history of taking out loans and repaying them will make you a more attractive prospect, but won't automatically guarantee that banks will throw money at you.
If your credit history revealed a large number of very small loans each paid back in a couple of months, this could actually hurt your ability to get a mortgage as a bank might think you have cash flow troubles.

A couple of smaller loans, repaid on time, and a strong history of saving are all you really need.

Carpe Natam

seamus wrote: »

It's a possibility.

No, not really. Banks won't offer lower interest rates based on your credit history. They'll vary the amount of money they're willing to give you, not the rate that you get.

You're right in that no credit history makes you an unknown, but it doesn't necessarily mean you'll have a low credit score. If you apply for a loan with the bank that holds your current account, your current account history with them (deposits & withdrawals) will have a big impact, even if you have no credit history.

Again, not really. Unlike the US where there's a "standard" scoring system, most banks will have their own in-house scoring system that will take your credit history into account when making the calculation.
Yes, having a good history of taking out loans and repaying them will make you a more attractive prospect, but won't automatically guarantee that banks will throw money at you.
If your credit history revealed a large number of very small loans each paid back in a couple of months, this could actually hurt your ability to get a mortgage as a bank might think you have cash flow troubles.

A couple of smaller loans, repaid on time, and a strong history of saving are all you really need.

Thanks very much for this (I am American, by the way, so that's the system I'm most used to).

Humour Me

Ireland doesn't have a credit scoring system though. Loans only appear in the ICB report if you go into arrears or default so taking out a loan and paying it back on time doesn't make a difference.

A mortgage will come to individual circumstance and with the Central Bank rules your priority should be to build up a deposit as you will only be loaned 3.5 times your salary. I'm not sure if they will take commission into account, again it will probably depend on your industry etc.

eviltimeban

They won't take OTE into account, just what they can see you are earning (on your salary slips - they'll want to see those).

Commission isn't guaranteed. As someone who has worked in sales all his life, you should not count on commission. What if you have a bad month or quarter, and get no commission, or half what you thought you'd get? If it had been me, I'd have picked the 20K / no commission job without evening thinking about it.

Sales is a tough world and even the most successful guys will get burnt out after a while. While you are young, and it is a young person's game, you won't be young forever.

seamus

Humour Me wrote: »

Loans only appear in the ICB report if you go into arrears or default so taking out a loan and paying it back on time doesn't make a difference.

Indeed it does.

The ICB report includes any open loan that you hold, or repaid in the last five years.

Carpe Natam

eviltimeban wrote: »

They won't take OTE into account, just what they can see you are earning (on your salary slips - they'll want to see those).

Commission isn't guaranteed. As someone who has worked in sales all his life, you should not count on commission. What if you have a bad month or quarter, and get no commission, or half what you thought you'd get? If it had been me, I'd have picked the 20K / no commission job without evening thinking about it.

Sales is a tough world and even the most successful guys will get burnt out after a while. While you are young, and it is a young person's game, you won't be young forever.

Think big, big data. And because it's passive, it's not a situation where it goes up and down (believe me - I've lived through that, and I couldn't do it). Subscriptions last from 6 months to 5 years.

It's essentially a situation where my salary will increase over time, there's no starting from 0 every month. :P

Milly33

I get where your coming from bar the house... I always earned enough money to cover my life and declined any loan offers and credit cards from the bank as my theory is if you don't have it to spend you save for it or you just don't get it at all.

Now on that one I also had a car I am weak for, and it came to let it go or do something... So I said feck it I would get a loan.. Went with the Credit Union who while they are great and I nearly trust them they are still a bit batty... But it turns out because I didn't ever have a credit rating it was more difficult.. I recently topped up the loan for another reason and only this time then was a credit rating applied to my name, as I took it out solely by myself with no guarantor.

In short I would think go for it, get a small loan out maybe for less than 5 or max five but use the money wisely. Maybe keep it in the account and only use it as a must.. It is very good to get a credit rating, and taking a small loan out does do this for you..

On the house don't buy your mad.. Rent

DeVore

Your capacity to repay will far outweigh any small loan repayments in history when it comes to a mortgage.
They will want to see a strong line of income (salary) into the account and from there they can deduce your capacity to repay. Ideally they want to see 3 years of this.

Taking a loan for the benefit of having a credit rating seems madly expensive given the interest rate you will have to pay. Saving for a good down payment and keeping your income strong are better approaches imho.

TimeToShine

I am struggling to understand how a 20 year old can possibly a) initially have a job which allows for a 20k pay cut, b) want to get a mortgage by the time he's 25 with a net salary of 2k and most importantly c) in spite of both a and b considers 5k-10k to be a "massive" loan.

Carpe Natam

TimeToShine wrote: »

I am struggling to understand how a 20 year old can possibly a) initially have a job which allows for a 20k pay cut, b) want to get a mortgage by the time he's 25 with a net salary of 2k and most importantly c) in spite of both a and b considers 5k-10k to be a "massive" loan.

1) I do, 20 and a half
2) it's a lot of money to owe if you don't get equity as a result.
3) can you stay on topic?

newacc2015

Humour Me wrote: »

Ireland doesn't have a credit scoring system though. Loans only appear in the ICB report if you go into arrears or default so taking out a loan and paying it back on time doesn't make a difference.

A mortgage will come to individual circumstance and with the Central Bank rules your priority should be to build up a deposit as you will only be loaned 3.5 times your salary. I'm not sure if they will take commission into account, again it will probably depend on your industry etc.

We do have a credit ratings agency. The ICB gives credit ratings using the same models as the US giving consumers FICO scores. All loans show up on the ICB report, regardless of default or not


OP if you want to build up a credit rating get a credit card and repay it 100% every month. You will get a credit rating and show banks you have the ability to repay loans

daheff

how about getting a car loan? at least then you can use the money to buy a car, and as you pay it back you get your credit history? And you have a car.(I'm assuming you drive...otherwise this isnt a great idea)


Otherwise I'd stay clear of the loan just to get a credit score.

A credit card that you pay off in full every month is also a way to start building a credit score. Try to pay as much as you can onto it and pay it off in full every month!