Advice needed for loan application

Connected_2

Hi all, just registered on the site, but have been a reader for a while.

I am currently looking to apply for a loan - however, I'm not sure what route to take.

I need the loan to convert the garage at my home in to a bedroom. The quote I have been given is £4,500. So I've been looking at a number of loan options on the internet, and Northern Rock seems to be the best bet.

It provides the flexibility to be able to overpay when required, and there is no charge for closing down the loan early - at a typical rate of 5.7%

Although, I'm not sure whether I'd be offered the 5.7% rate.

I'm 21, living at home with my parents, and it would be classified under 'Home Improvements'. With this in mind, will they offer me a higher rate because of the reason of the loan?

My credit rating should be good as I've never been refused for any lending/credit requests, which is backed up on my Experian file.

I've had a Barclays current account since I was 16, but Switched to HSBC last October - will this make a difference as I've been with them for less than a year?

In addition to this, I have a Credit Card with a limit of £2,000 with no balance, and another Credit Card with a limit of £4,500, with a balance of just £400 - so should I cancel the Credit Card with no balance to give myself a better chance of obtaining the loan?

My Salary is 14k per year, with regular bonus on top, but I doubt the bonus will make a difference to any application (Apart from maybe applying for a Mortgage)

So after all that, I suppose what I'm asking is:

1) Do you think I will be eligible for the Loan?
2) Will the circumstances effect the APR?

I also read on this website that you can transfer a Credit Card balance on to a card with an APR of 4.95% with Intelligent Finance - do you this may be a better option as it's a lower rate, and you have flexibility with repayments?

The card I have is with HSBC (£4,500) and it's well known they are fairly strict with lending requests. So effectively, I would use the card to fund for my garage to bedroom conversion by transferring the money in to my current account, and then paying for it that way. Then I could transfer my balance on to the IF card.

Sorry for the long post, and I realise that no one can say for sure whether I'd be accepted for a loan/card - I'm just looking for the best option for my lending request.

Thanks for reading.

jonesMUFCforever

Do your parents own their home or have a mortgage?
If so should'nt they be doing this as it is their property?

Have you also though that in some circumstances you may need Planning permission and of course your parents' insurance company will need to be informed regarding the change in the buildingsand if applicable the mortgage company as your 'home improvements' will affect the property.

What happens if you leave home?
Do your parents park their car in the garage now?
Have they informed their insurance company in the past that they keep their car in the garage overnight (to save on premiums)?

So many things to think about.
Now for the loan application itself - you will have to put down your salary as £14k pa unless your bonus is guaranteed and forms a part of your contract of employment.
The main sticking point in your application will be the reason you want the loan ie Home improvements against your residency situation ie Living at home with parents. I would have though that any lender will ask questions like I have above.

Connected_2

Do your parents own their home or have a mortgage?
If so should'nt they be doing this as it is their property?

Yes, they do have a Mortgage on the property. However, the situation with my parents is that they have borrowed up to the maximum amount with their mortgage provider.

Of course it may be possible to lend even further with another company, but then you have the hassle of transferring your mortgage, which then results in further fees etc - and from what I understand, they're tied in with their current agreement.

And what makes it even more complex is that my mum is off work at the moment because she suffered a very serious car accident. Luckily, she's at a company who are paying her a full wage until she gets back to work, so that could potentially restrict a mortgage increase.

As it's myself who wants the conversion, I've taken the reponsibility to fund this. We currently live in a 4 bedroom property, and there is 7 of us at home! So I want my own room as I'm sharing with my annoying younger brother, who is 17, and at a stage where he's very akward.

Have you also though that in some circumstances you may need Planning permission and of course your parents' insurance company will need to be informed regarding the change in the buildingsand if applicable the mortgage company as your 'home improvements' will affect the property.

We've applied for planning permission, so we're awaiting a decision on that (Hopefully that shouldn't be a problem)

My parents are aware of the insurance implications, so that will be dealt with in due course.

What happens if you leave home?

To be honest, I won't be leaving home for a while. Not because I don't want to, but because it's not financially viable with my wages. I'm single at the moment, but that might change, and then it could take on a new meaning.

However, my parents are looking at downsizing in the next few years, and when they do, they will be giving me the money back that I've invested.

Do your parents park their car in the garage now?
Have they informed their insurance company in the past that they keep their car in the garage overnight (to save on premiums)?

No, they don't. The garage is full of rubbish!

Thanks for your reply, ejones. Appreciate the advice.

Astaroth

Generally garaging a car only reduces the premiums for luxury vehicles rather than run of the normal family car type things - some insurers no longer as this question as they arent targeting people with Mercs etc so why take up more time for the minority.

The only way you can tell if you can get it will be to apply to be honest. If you were not living with your parents I would say your chances are fairly low but given your cost of living is much lower it may be possible - I left home at 18 to go to uni and never returned so cant comment on the viability of it having no first hand experience.

I would imagine that your parents going down the secured loan route may be a more viable option though.

littlejaffa

from what i understand your parent have a mortgage, but it's less than 100% of the property's value, they don't want to change to a higher mortgage (and release the equity) because of the admin costs, assuming i've got that right, they should apply for a secured loan. They can do this with lots of company's, generaly get a better rate than your would (you'd have to go with an un-secured loan) and they would (in my opinion) be rightly responsible for payments as it's improving their home and increasing it's value. Though you could get them to take out the loan then you pay it. This means you won't be stuck paying something you're not benifiting from should you move home/fall out etc etc etc. and you'd get the benifit of the better rate. This would depend on your parents income, credit and mortgage history being half decent.

If you got for a loan yourself it needs to be unsecured, it's doesn't make a huge difference that it's for home improvements cause it's not your home. It might as well be a holiday as you'll have nothing to sell to recoup the money should you default.

Also don't assume no credit problems means a good credit rating, you've not had a huge amount of credit, that means it's harder to work out if your a good risk or not, and you may be turned down for that reason.

hope that helps

Connected_2

Astaroth wrote:

Generally garaging a car only reduces the premiums for luxury vehicles rather than run of the normal family car type things - some insurers no longer as this question as they arent targeting people with Mercs etc so why take up more time for the minority.

The only way you can tell if you can get it will be to apply to be honest. If you were not living with your parents I would say your chances are fairly low but given your cost of living is much lower it may be possible - I left home at 18 to go to uni and never returned so cant comment on the viability of it having no first hand experience.

I would imagine that your parents going down the secured loan route may be a more viable option though.

I honestly don't feel I'd be refused the loan, because I've never missed a repayment on anything I've had - 2 Credit cards, and a contracted mobile phone agreement for 3 years.

My fear is based on having very little credit - the two cards, resulting in a total credit limit of £6,500.

I checked my credit file a few months ago - creditexpert.co.uk (If I remember correctly as instructed by SME) and I paid to see what my projected credit score is - I got back 894, so that suggests it's pretty good.

I mean if HSBC can give me a limit of £4,500, who are notoriously strict for lending requests, then I don't see why any other lender would reject me.

I also have a 500 overdraft with them, and when I was previously with Barclays, I had an 800 limit, and I've never exceeded the limit.

The reason I had a Barclays overdraft limit of 800, and used that (but never exceeded it) was that I was at uni for 3 years as well, but still lived at home and had a reasonable part time job.

With HSBC, and I've never used the facility since I've been with them - October 2005. When I applied for the credit card with them, they said I could lend up to £11k in total with them! This was 6 months ago. The same time I started working full time for the first time.

You're right in saying that I will only know by applying, but I would hate to have a rejected request on my credit file, despite having a more than decent history.

A mate of mine, who is 21 and has never had any lending previously, and has been in a full time job for about 5 months now - was able to get a 7k loan with Nationwide at 6.3% for a new car - he also lives at home with parents.

I'm probably being over cautious, but I'm just wary of what impact a rejected application would have on any future lending requests. And if I was accepted, I wouldn't want to have a higher rate offered, simply because of the nature of my request for lending.

I could put on the application form that is for a consolidation request, which would then probably give me the offered rate of 5.7%.

Another friend of mine, who has been at uni, built up a overdraft of over 7k with two banks, applied for a loan at Moneybackbank on the internet, and got a decision in an instant, and was subsequently accepted for a loan at 5.5%. (Also lives at home)

So to me, it seems that with Moneybackbank, it was just an automated process, therefore I could apply with them and state I want it for debt consolidation and probably be given the same decision and rate.

I'm sorry for going in to so much detail, but I just wanted some views on my situation to reassure me.

Connected_2

littlejaffa wrote:

from what i understand your parent have a mortgage, but it's less than 100% of the property's value, they don't want to change to a higher mortgage (and release the equity) because of the admin costs, assuming i've got that right, they should apply for a secured loan. They can do this with lots of company's, generaly get a better rate than your would (you'd have to go with an un-secured loan) and they would (in my opinion) be rightly responsible for payments as it's improving their home and increasing it's value. Though you could get them to take out the loan then you pay it. This means you won't be stuck paying something you're not benifiting from should you move home/fall out etc etc etc. and you'd get the benifit of the better rate. This would depend on your parents income, credit and mortgage history being half decent.

If you got for a loan yourself it needs to be unsecured, it's doesn't make a huge difference that it's for home improvements cause it's not your home. It might as well be a holiday as you'll have nothing to sell to recoup the money should you default.

Also don't assume no credit problems means a good credit rating, you've not had a huge amount of credit, that means it's harder to work out if your a good risk or not, and you may be turned down for that reason.

hope that helps

My parents credit history is excellent (again, never missed a payment on any agreement) - My mum and dad have a mortgage (120k left to pay), a loan of 20k, and a number of credit cards, with a total of about 10k on them. So I wouldn't want them to apply for further lending when they already have plenty outstanding, then get refused because they have too much.

And with our house valued at 250k (unofficial valuation, based on houses similar to ours in the same area), the conversion won't really add any value to the house, as we're taking away a garage, and then you have a stamp duty increase for properties rated above the 250k level, so my parents are wary of that.

Thanks for the advice.

littlejaffa

It sounds like your parents have maxed out their lending, you won't know if you'll get an unsecured loan till you try, different companies score different things, but with your lack of history it's possible you'll be refused.
Have you thought about (u might want to sit down for this!) putting something in the back garden, a logcabin or caravan, you could get a realy decent one for the same price as the conversion, but would still have a garage AND have something to sell/that belongs to you that you could recoup the cost on later. (it seems your saying the cost of the conversion couldn't be recouped with stamp duty/loss of garage etc)

from a quick search i found -
https://www.dhleisureandgarden.com (log cabins from £1,000 or garden office from £3,000)
https://www.timberbuilding.co.uk (Log Cabin James (MODT) 3.9M x 3.9M @ £2,000 ish)

you could spend the difference on insulation (garages ger freezing in the winter to)

Connected_2

littlejaffa wrote:

It sounds like your parents have maxed out their lending, you won't know if you'll get an unsecured loan till you try, different companies score different things, but with your lack of history it's possible you'll be refused.
Have you thought about (u might want to sit down for this!) putting something in the back garden, a logcabin or caravan, you could get a realy decent one for the same price as the conversion, but would still have a garage AND have something to sell/that belongs to you that you could recoup the cost on later. (it seems your saying the cost of the conversion couldn't be recouped with stamp duty/loss of garage etc)

from a quick search i found -
https://www.dhleisureandgarden.com (log cabins from £1,000 or garden office from £3,000)
https://www.timberbuilding.co.uk (Log Cabin James (MODT) 3.9M x 3.9M @ £2,000 ish)

you could spend the difference on insulation (garages ger freezing in the winter to)

Thanks for the idea - I'm not sure it would be viable though in a practical sense.

I basically want a decent sized bedroom for myself, with a possible ensuite. It would just give me privacy and space, which isn't the case at the minute with the size of the family! I'm not sure a cabin could do that, and it makes it a bit tricky being outside, then having to come inside to use the bathroom at night!

It's my parents home, and in theory, they should pay for the improvements, but I want to take responsibility in funding it myself. Their outgoings are already high enough as it is with such a big family, and I don't want to add to it.

Connected_2

I've been on the Nationwide website today as I've heard they guarantee the APR advertised should the application be approved - I've looked at a quote for £5,000, with a rate of 6.7% - which isn't too bad I suppose, although you can obviously get a bit cheaper than that.

I just wouldn't want a situation whereby I apply for a cheap rate loan with either Northern Rock or Moneybackbank, and then get offered a much higher rate, subsequently meaning a credit search being wasted.

I'm still toying with the IF option, although that would also be a lottery. Spend up to almost my credit card limit with HSBC, then transfer it to the 4.95% rate. However, I doubt IF would even offer me around a £5,000 limit when they have very little history on myself. At least I have my current account with HSBC, so they're likely to bump up my limit if I wanted to.

MarkyMarkD

If I was a lender I wouldn't accept a "home improvements" loan for someone who isn't a homeowner - it looks very dodgy IMHO.

At the end of the day, you would be spending your money improving a property which is not yours, and could be out on your ear with no benefit from the spending.

The amount you want to borrow is also not insignificant compared to your income.

Don't get excited about Nationwide's "guaranteed rate" cobblers - it's easy to guarantee the rate if you reject 75% of applicants. Better to be accepted at a reasonable rate than rejected at a cheaper "guaranteed" one.