Help needed - change of loan now or later?

Lucy_Pointycat

Hi all,

I'd really appreciate your thoughts on whether it is best to change my personal loan now, or later.

Currently I have a Lloyds TSb loan of which the settlement would be £3200. The loan is at 17% interest, includes protection insurance and has 44 months to run. I also have an overdraft with Lloyds of about £2000 and am not sure what the interest is on this but I get charged about £25 a month. I also have an interest free debt to my employers of about £800, which is going out of my salary direct at £200 a month for 4 months.

I have just started using the Amex Nectar card, paying the balance off in full every month, in order to build up my credit history and make it less likely I will be refused credit.

Is it better to take up the offer of a Cahoot loan NOW, at 9.7% on £6000 to pay off all of these at £109 over 72 months, or wait 6 months to a year and re-apply to moneyback loans or similar at (hopefully) a rate of approx 5% interest on £5000? Will I get charged an early settlement fee by Cahoot if I take out a loan now and then swap it for a lower interest one later?

Any help much appreciated!

Lucy Pointycat

grumbler

A few thoughts

Lucy_Pointycat wrote:

...Currently I have a Lloyds TSb loan of which the settlement would be £3200. The loan is at 17% interest, includes protection insurance and has 44 months to run.

Current outstanding balance?

I also have an overdraft with Lloyds of about £2000 and am not sure what the interest is on this but I get charged about £25 a month.

From what you say rate is 15-16% EAR. Is it Graduate Gold account wiht 15.7%?

I also have an interest free debt to my employers of about £800, which is going out of my salary direct at £200 a month for 4 months. ... Is it better to take up the offer of a Cahoot loan NOW, at 9.7% on £6000 to pay off all of these at £109 over 72 months,

Are you struggling to pay this £200 p.m.? Otherwise what is the point to take 9.7% loan to pay interest-free debt? Why so long term and so small payments?

...in order to build up my credit history and make it less likely I will be refused credit...

It seems like you are going to rack up your debt. Is this why you aim to minimise your monthly payments? Bad idea.

Will I get charged an early settlement fee by Cahoot if I take out a loan now and then swap it for a lower interest one later?

What Cahoot loan do you mean? They offer two loans:

-flexible one with 6.9% typical rate and no early repayment charges
-fixed rate one with 5.8% typical

Where does your 9.7% figure come from?

Lucy_Pointycat

Hi grumbler, thanks for your reply.

My current outstanding balance on the loan is £3500. My current account is the Classic Lloyds TSB.

I am on an extremely small salary and so, although I would love to be able to increase my repayments or pay the current loan off more quickly, it's a struggle just to manage £108 a month currently. It will be a titanic task to add £200 to my outgoings over the next four months, but I'm sure you're right, it would probably be foolish to incur a debt with interest when it's currently a debt without interest. So I guess the most I need to borrow to pay off my overdraft and current loan at high interest would be £5200. When I went through the application process with Cahoot the rate that came back for me was 9.7% - that's the fixed rate one. I guess the interest rate is higher than their quoted typical figure because of my lack of credit history - something I'm trying to address with the use of a credit card (using this to replace my debit card and paying off in full every month, i.e. not paying any interest, just using for purchases). Hence the whole 'should I change my loan now as I'm paying v. high interest rates, or wait until my credit history's built up and I can get a better deal' question.

Any help appreciated! Cheers,

Lucy

grumbler

Lucy_Pointycat wrote:

Currently I have a Lloyds TSb loan of which the settlement would be £3200. ... My current outstanding balance on the loan is £3500.

How can the settlement figure be lower than the current balance? And don't they penalize you for early repayment?

Your current loan with L TSB will cost you about £1230 in interest over 44 months. (http://www.bankrate.com/brm/popcalc2.asp?unroundedPayment=107.4405700921878&loanAmount=3500.00&nrOfYears=3.67&nrOfMonths=44&interestRate=17.00&startMonth=10&startDay=28&startYear=2005&monthlyPayment=107.44&showAmort=Show%2FRecalculate+Amortization+Table&monthlyAdditional=0&yearlyAdditional=0&yearlyAdditionalMonth=10&oneAdditional=0&oneAdditionalMonth=10&oneAdditionalYear=2005&paidOffDate=Jul+28%2C+2009) The same amount with 9.7% over 72 months will cost you even less - £1130. Hence, there is no question with switching £3500 (if there is no penalties). Extra £2000 will result in extra £36.75 p.m. and in extra £646 interest. If low monthly payments are your main priority at the moment, do this. Otherwise think again :think: .

6 years is a long time. If you hope to be able to get lower rate in future it is worth thinking about flexible loan that allows you switching at any time without penalties. Interest rate will probably be slighgtly higher.

When I went through the application process with Cahoot the rate that came back for me was 9.7% - that's the fixed rate one

Have you saved your application so that you can retrieve it? Be aware that every application results in a credit search listed on your file(s) that worsens your chances with further applications within next few months.

Lucy_Pointycat

Thanks grumbler - some very good points to think over.

The early settlement figure is lower than the outstanding balance because this includes a rebate on loan protection. Unfortunately I can't just cancel the protection without taking out a replacement loan :-( Not sure if there is a fee for early repayment - probably, but if so it's included in the early settlement quote.

Having just been through the cahoot flexible loan application, although the rate it's quoted me at 11.5 % APR is quite high, it probably makes sense to take this, rather than the fixed rate loan, and switch to a lower rate once I can get a better deal. Would you agree?

Once again, I appreciate your help

Lucy