£230/month loan interest - am I nuts?

Izzard

Hi folks. Please someone advise what (if any) options I can pursue to improve on this situation. I've had a big debt following me around for years and, while it has never given me grief because I've worked continually, it does stress me to think about it. My family survives OK by spending conscientiously and our total debt is gradually reducing.

In September I visited the my bank manager who seemed very pleasant and convinced me I should consolidate everything into one Lloyds TSB loan. He set it up there and then. Nowadays our finances are simple - I can manage the current account and my wife and I both work so we just about get by. ALL of our debt is represented by this one loan (the forum won't let me post a scan of the statement, so I've reproduced it with pennies rounded out):

[b]28 Sep 08----------Opening Balance------------------------------19,920[/b]

28 Sep 08----------Interest charged--------------------250----------19,169
29 Sep 08----------Payment received----------502--------------------18,668

28 Oct 08----------Payment received----------502--------------------18,166
28 Oct 08----------Interest charged--------------------239----------18,404

28 Nov 08----------Payment received----------502--------------------17,903
28 Nov 08----------Interest charged--------------------243----------18,146

28 Dec 08----------Interest charged--------------------232----------18,378
29 Dec 08----------Payment received----------502--------------------17,876

28 Jan 09----------Payment received----------502--------------------17,375
28 Jan 09----------Interest charged--------------------237----------17,611

28 Feb 09----------Interest charged--------------------233----------18,844

02 Mar 09----------Payment received----------502--------------------17,343
28 Mar 09----------Interest charged--------------------208----------17,551
30 Mar 09----------Payment received----------502--------------------17,049

28 Apr 09----------Payment received----------502--------------------16,547
28 Apr 09----------Interest charged--------------------226----------16,773

28 May 09----------Payment received----------502--------------------16,272
28 May 09----------Interest charged--------------------215----------16,487

[b]28 May 09----------Closing Balance------------------------------16,487[/b]

As you can see, it costs us £230 a month in interest and the loan isn't going anywhere fast. I really want to replace this with something better. Is there any hope? Or is this about the best I can expect for?

Many thanks.

_Andy_

In the early days of a loan much of the payment will be interest.
As time goes on your payment is comprised of more and more of the capital.
Towards the end of the term the majority of your payment will be the capital owed rather than interest.
As I don't know the interest rate of your current loan it's impossible to say if there would be better elsewhere.

Izzard

Thanks for pointing that out. Maybe I shouldn't panic too much then.

The original loan amount was £19,380
The current loan balance is £16,203
The APR is 16.7%
The settlement figure is currently £16,488.

_Andy_

Well the APR is pretty high. Whether or not you would be accepted with another lender isn't something I could comment on.

Rafter

The APR isn't great, but it is better than the average credit card these days and it is a pretty large loan.

You are doing a great job of clearing your loan over 3 years rather than a longer period.

What you might find in a year of so, is that loan rates start coming down a bit and because you will have repaid a good chunk you might be able to get some cheaper financing and pay off some of this higher interest loan. However, there may be early repayment penalties that make this not worth while and you may have to stick it out for 3 years.

The other option (if your mortgage deal is coming to an end and you have plenty of equity) is to consolidate this loan into an offset motgage of some kind. WARNING: You will be putting your home at risk by doing this.

If you then keep up the same level of payments you should save £1500 in interest.

Good luck

R.

Izzard

My credit history is excellent. Tesco's (for example) do loans at about 8-9% APR. If I took at a 3-year loan of 15,000 with Tesco, the monthly payments would be £500 (@ 8.2% APR). Assuming I could get that loan - should I?

8.2% sounds a lot better than 16.7% APR to me but I don't understand these things very well

Izzard

Rafter, thanks for your input also. I don't have a mortgage as we rent. The bank manager told me that there was an early settlement penalty but that I could choose to pay off almost all the loan and then let the last payment go out as normal. That way I wouldn't be penalised. That sounded handy to me and I think that's what swayed me to go with their loan.

Rafter

OK - penalty doesn't look too bad.

Problem with the tesco route is the amount of borrowing you have already.

They have no guarantee that you will pay off your Lloyds loan.

Not being a home owner makes you a higher risk too, because Tesco can't use the threat of putting a charging order on your house to make you pay if you get into arrears!

If you are earning 60k+ You might get lucky and get Tesco to lend you that much. Might be worth a try, but might be worth applying over the phone and speaking to a real human to get the loan manually assessed.


R.

Izzard

Ok - great information, thank you. Assuming I could get the loan, do I actually save anything by doing so? This is what I don't understand. The monthly repayment is the same, and the loan amount is the same, yet the APR is about half. It would be like extending the loan for an extra year? Confused

mrcow

Out of interest, what was the original term of your loan in years?

Izzard

I can't remember but I think it must have been 3.