NR unsecured loan at 8.9%?

morgan1961

Hi everyone,

Still finding my way around so forgive me if I'm asking a silly question.

I recently applied for a Northern Rock unsecured loan (without 'insurance') to help me with a 9k tax bill and today I have an offer letter of 8.9%. This seems quite a way from the 5.7% advertised and I am minded to see if I can't get a better offer elsewhere.

The question is will this impact on my credit rating if I try and find a better rate? I feel slightly miffed because I had an NR loan in the past which I paid off early so I thought that might at least make me a good customer. 8.9% seems a lot compared to the revenue's interest rate of 7%, but my thought was that I can get it all out of the debt out of the way right now and work on repaying the loan asap.

Or am I deluding myself?

Thanks as always,

Morgan

happyformonths

Hi Morgan,

I don't think you're deluding yourself.

However if the IR are "offering" you 7% then it's illogical to take a loan for 8.9%. To be honest, even if you got 5.7% it wouldn't actually make that much difference compared with 7% over the life of it. (I think you can play with numbers on the website http://www.whatsthecost.com). If it were me, I wouldn't waste the credit search on applying for another loan. There may be loan arrangement fees anyway, for which I assume there is nothing comparable with the IR.

I understand your feeling of "I want to get the debt out of the way right now and work on paying the loan" but you have to remind yourself that getting a loan is NOT "getting the debt out of the way". It's still the same debt, you're just paying a different organisation, that's all. The number of times I see people saying "I'm getting a loan so I can pay off all my debts" drives me mad (sorry - not that you said this - I'm just going off on one!).

Anyway, I reckon you should stick with the IR's 7%. That's just me though.

I once was offered a "pre-approved" loan for 6.9% during a long phone conversation from my own bank, which I explained to them I would accept because I wanted to reduce the interest I was paying on the credit card I held with them (9.9%). Great and fine, except when the paperwork came through it turned out they had decided it was going to be at 12.6%, so totally useless to me and a wasted credit search. I was really annoyed at the time, but it didn't seem to cause any "damage" credit-report wise.

Those are my thoughts

HFM

morgan1961

Thanks for your detailed reply, HFM. It's funny the way you can go from thinking you're in control to sensing that things are slipping away from you almost overnight.

I take your point on shifting the loan around but I am not sure how much I can afford to pay the IR directly every month. My accountant says for instance that £100 a month would be unacceptable to them because I'd probably be retired by the time it's paid off! I guess the best thing to do is speak to them directly.

Meanwhile, my bank have offered me a 7.5% loan over the phone, but with a £100 arrangment fee. Grr. Wonder if they might waive that?

Thanks again, though.

Morgan (not drowning, but waving)

ESTEE_3

this is similar to what I have just got from Northern Rock as well.

applied for a loan at the advertised rate and offer has came through at 8.9% and was wondering what effect this will have on the credit history if I refuse that one and make another application with a different firm to try and get something around 6-7% range which would be more acceptable.

So same question from me in that does it have much of an effect on the credit rating??
oh and any tips on who to apply to in order to actually get the advertised rate?

annie-c

Brief answer is that there is no such thing as a 'credit rating' per se, but individual lenders will have their own form of 'credit scoring' by which they will assess the kind of risk you pose as a potential client. The big things that will affect your credit score for any individual lender are: whether you have a history of CCJs, defaults, missed payments, whether you have a record of managing debt well, eg they will look favourably if you already have some debt in the form of credit cards/loans that you are paying off steadily; whether you are a homeowner; whether you are on the electoral role and have a home telephone (ie whether or not your address is stable and that you are contactable). All of these things add up, and depending on the priorities of a particular lender they will decide whether you are suitable client for them.

Making multiple applications for loans may affect a lender's decision because it may be taken as a sign that either you might be overextending yourself by borrowing lots of money all at once, or that you are getting lots of rejections, ie others are already seeing you as a bad risk. For these reasons it is not a good idea to apply for a financial product more than a few times a month.

One way to get around this issue it to use a broker (Martin suggests some names over on the main site) - I have used Moneyextra and moneysupermarket in the past. They will be able to take your details and ask you the general questions that lenders ask and give you an indication of the best rates that someone in your situation might get, before actually processing an application. The method isn't foolproof, but you have nothing to lose as long as you make it clear at the outset that you don't want to process an application before you have had some advice and time to think things over.

Annie