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  • FIRST POST
    • Jbird83
    • By Jbird83 13th Jun 17, 12:17 AM
    • 2Posts
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    Jbird83
    Pay off card before loan application
    • #1
    • 13th Jun 17, 12:17 AM
    Pay off card before loan application 13th Jun 17 at 12:17 AM
    Hi,

    A rather large overspend on some home improvements has left me with a 12k debt on a credit card. I can manage to pay the minimum plus a little extra, but would prefer to have it on a loan instead for lower interest and to have it on a fixed term - i.e. 5 yrs.

    At the moment the soft search eligibility checker only gives me a 30% chance of being accepted. I could however take a temporary loan from the bank of m&d to pay the card off, and then wait a few months before applying for a loan in the hope of a better chance of being accepted. Obviously however there are no guarantees I'll be accepted down the line.

    All things considered, does this sound a sensible option or a foolish one?
Page 1
    • Ben8282
    • By Ben8282 13th Jun 17, 5:59 AM
    • 2,003 Posts
    • 876 Thanks
    Ben8282
    • #2
    • 13th Jun 17, 5:59 AM
    • #2
    • 13th Jun 17, 5:59 AM
    Taken in isolation and not taking into account any other factors which may affect the loan decision, I believe that very substantially reducing the balance of the credit card will greatly assist both your chances of obtaining the loan and the APR that you will be given. Your suggestion is a sensible one.
    Last edited by Ben8282; 13-06-2017 at 6:05 AM.
    • Pixie5740
    • By Pixie5740 13th Jun 17, 8:17 AM
    • 10,816 Posts
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    Pixie5740
    • #3
    • 13th Jun 17, 8:17 AM
    • #3
    • 13th Jun 17, 8:17 AM
    How does "the minimum with a bit extra" compare with the loan repayments?
    Annual income twenty pounds, annual expenditure nineteen pounds nineteen and six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds nought and six, result misery.
    • Jbird83
    • By Jbird83 13th Jun 17, 9:43 AM
    • 2 Posts
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    Jbird83
    • #4
    • 13th Jun 17, 9:43 AM
    • #4
    • 13th Jun 17, 9:43 AM
    Taken in isolation and not taking into account any other factors which may affect the loan decision, I believe that very substantially reducing the balance of the credit card will greatly assist both your chances of obtaining the loan and the APR that you will be given. Your suggestion is a sensible one.
    Originally posted by Ben8282
    Yes, obviously there are other factors that will be taken into consideration, so I know nobody can say with any authority how 'good' of a suggestion it is, I guess I'm more looking for some sanity checking on my man-maths . Other debts not being paid off would be my car finance and another £2k of personal spend on another card that I wasn't necessarily planning on clearing in this instance as it would be possible to clear sooner. My income is about £28k.

    How does "the minimum with a bit extra" compare with the loan repayments?
    Originally posted by Pixie5740
    Currently minimum payment is around £270 and I pay another £50 on top (interest rate is 6.8%). Loan payment would be around £240 assuming I got the headline APR of ~3%
    • tonyh66
    • By tonyh66 13th Jun 17, 10:29 AM
    • 980 Posts
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    tonyh66
    • #5
    • 13th Jun 17, 10:29 AM
    • #5
    • 13th Jun 17, 10:29 AM
    I can see you have a car loan and £14k on credit cards this is probably why you have little chance of getting a loan at the minute. I suppose borrowing from M&D will hide the £12k debt from the credit check which may help, but you may need to wait 3-6 months for it to show up as paid off (close the credit card account once paid off).
    • Pixie5740
    • By Pixie5740 13th Jun 17, 10:35 AM
    • 10,816 Posts
    • 14,943 Thanks
    Pixie5740
    • #6
    • 13th Jun 17, 10:35 AM
    • #6
    • 13th Jun 17, 10:35 AM
    Paying back £12k on a credit card with an APR of 6.8% with monthly repayments of £320 (£270 + £50) will take you 43 months to repay and cost £1,528.73 in interest.

    A £12k loan with an APR of 3% taken over 60 months would have a monthly repayment of £215 (not sure where the £240 is coming from) and cost £856.27 in interest.

    Therefore, assuming you can achieve the headline rate or close to it, it would be less expensive to get the loan. Certainly owing less money (to lenders who report to the CRA at least) when you apply for the loan will improve your affordability therefore improving your chances of getting a loan. However, what happens if you can't get a loan? Would the bank of mum & dad be willing to let you extend the term with them?
    Annual income twenty pounds, annual expenditure nineteen pounds nineteen and six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds nought and six, result misery.
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