Paying off a loan from parents

michael1983l

Ok I want to pay off a loan from my parents which will be 25k, I am a home owner and have small ammount of credit card debt which we have a plan to pay off within 6 months. I have 2 bank accounts and 3 credit cards. I also have about 20-30k Equity in my property. Here's my question will it be best to pay off all loans over 6 months, make nil applications for credit and then apply for the loan. (I'm on 40k a year)

Or do I also close 1 bank account and 2 credit card accounts and wait for them to be classed as settled on my credit file first?

Which way will reflect better on me?

Also do I tell the lender that it is to pay my parents or do I tell a white lie and say it's for home improvments?

LoopyPrune

We also made a sizeable withdrawal from the Bank of Parents and while the interest rates are the most favourable there is always the emmotional tie where you don't want to be seen "living it up" while you still have an outstanding balance. But you have to be sensible and always attack the debt with the highest APR first. I would only use 2 bank accounts if they worked for me i.e. the Halifax Reward account pays £5 per month aslong as the account is credited with £1k per month, then transfer that money into anther account like a Santander account for other benefits. Having available overdrafts on dormant bank accounts eats into what you would be allowed to borrow on a loan. Same applies to the CC, unless they work for you, ditch them as its all dead credit. Once you have cleared as much as possible and kept things quiet on credit searches etc then apply for a loan.

michael1983l

Cheers, that is what I thought too. The loan off the parents is an actual loan just in their name so I want to get the liability off their head and as you say I don't want to be seen as living it up.

Does anybody have any advice on what I should tell the bank when applying for the loan.

CLAPTON

I see no benefit is closing the current a/c or the CCs although paying the CC off in full is a good idea.
Two current a/cs are not excessive and 3 CCs is probably below the average

Having had problems with declined CCs (without any apparent reason) and extreme caution at home but especially when abroad I rarely leave home without two CCs and two debit cards.

In the currrent climate I doubt that you will get an unsecured loan of 25k and you probably haven't enough equity to increase your mortgage by that amount.

However i guess you can but try.

michael1983l

it will be in 6 months minimum, but I always thought that settling accounts would show that you clear debts well. Also I thought that having available credit even if not used would be knocked off your set credit availability to lenders. So if I have 10k of credit cards available and a loan to income limit of 25k then I could only realistically get a further loan of 15k, Is this not true?

LoopyPrune

Yer CLAPTON has a point in that aslong as the bank see's good activity on CC or bank accounts it doesnt pose to much of issue. Paying more then the minimum and not riding to more then 90% of your available CC balance is the most important. Everything else is cream cheese.

I see your concern about your parents liability and although myself I was able to borrow direct. They have infact put their credit worthiness on the line. You may have to accept that the best possible route is just save save save and try get ahead of the loan payments i.e. set a savings account up for you and your parents where you can hold a "slush" fund for the loan repayments. As CLAPTON has said 25k maybe alittle out of reach but I don't see why say 15k would be impossible to get in 6 months to a year. As far as telling the bank, I would just use the truth and explain your parents liability, anything else is classed as fraud.

michael1983l

Thanks for the advice. I would much rather get the debt on my head as I would never like anybody else to be put into jeaprody for my actions. In 6 - 12 months the debt may only be around £17 - 20k So if I can save 5k and then get a 15k loan it might be better.

LoopyPrune

Sounds like a master plan to me. :money: