New loan or not new loan

no1gymbunny

Hi

Bit of advice required. I thought this was a no-brainer until I just read somewhere on here that consolidation is not the way to go.

I currently have a loan with Halifax at about 9.9% - amount owing - about £9,000. I have a NatWest loan for about £1,200 at a scary 20.3%. I'm paying £187.43 and £61.95 respectively per month.

I downloaded and filled in Martin's fab budget planner and, well, let's just say it was a good job I was sitting down. Not pretty reading. My monthly spending needs to come down A LOT. Would I be better off taking out a new loan and paying off these 2 loans and the £250 or so I owe Next Directory?

If the answer is yes, does anyone know of a loan where I can pay of extra chunks here and there without incurring any penalties?

Any suggestions would be greatly appreciated!!

Thanks in anticipation xx

mrcow

The reason people say "consolidation" is not the answer is because a lot of people get trapped into the idea of taking loads of debt racked up on credit cards and then lumping it all together on VERY expensive SECURED credit on their houses which they can ill afford, in the meantime not attacking the ACTUAL problem (which is overspending!) and using the "spare" (as they see it :rolleyes: ) cash to buy more things that they can ill afford.


Draws breath


What you are looking to do is to refinace a couple of loans on quite high APRs to a better deal if possible. The secret is to:

a. Cut down the apr
b. Cut down the length of loans so you pay them off more quickly

Most "high street" lenders will offer types of flexible loans. it's worth having a shop around before you apply for any. My favourite used to be Cahoot FLEXIBLE loan (as you could pay off what you like when youlike), although check out their T&Cs & APR nowadays as I think it's recently gone up?

Other ones are Egg, A&L etc (but you'll need to read terms and conditions to anythign you sign up for).

What periods were your original loans over? And how much are you looking to cut down by per month?

If your spending is that bad that you are looking to refinance loans, then I would also recommend a vist to the Debt Free Wannabe board, as you could also save a packet on your spending on groceries/utilities and other stuff you either don't need or don't realise you don't need (yet!)

Take care

no1gymbunny

The Halifax loan was taken out in April 2004, cunningly I took this out my mum's name as I had a rubbish credit rating (don't worry, I asked her first!). Think there's about 59 repayments left.

Only took out the NatWest loan in March 2006 over 42 months.

mrcow

Okay I think you need to get the paperwork for both of your loans and check out what you are actually paying.

Please correct me if I've got this wrong but here goes:


You took out a loan for £9000 over 84 months (7 years) at 9.9% APR in your Mum's name and are paying £187 per month for it?

A £9000 loan @ 9.9% apr over 84 months should be costing £147 per month.

You took another loan out for £1200 over 42 months (3 1/2 years) at 20.3% and are paying £61.95 per month.

£1200 loan @ 20.3% apr over 42 months should be costing £39 per month.

So you are currently overpaying by £62 per month, which maybe doesn't sound a lot, but over the course of your loans, it equates to £4326.

My thoughts are that you have either signed up to some (very expensive) PPI, or that you are not paying the rates that you think you are.

A quick way to reduce your loan repayments would be to see if you can cancel this PPI to save on the monthly repayments. A call to your lenders will confirm if you can do this, but beware, it may not be worth cancelling at this stage, as the PPI premium is normally ADDED to your loan amount at the beginning and then you end up paying interest on the whole lot of it throughout the loan period.

If you have taken out PPI, it may skew any settlement figure you get anyway, so you are going to have to speak to them confirming what the settlements on these loans are anyway.

I'm confused as to why PPI would have been taken out on the larger loan, as it's in your Mum's name anyway, so you wouldn't be covered by the insurance even if you did lose your job!

Please can you take a look at the loan agreements and confirm whether it is the PPI that is inflating these figures?

Debt_Free_Chick

Martin has an article explaining how you work out whether it's worth refinancing an existing loan, to take advantage of a lower APR.

Note, that you DO NOT extend the original term of the loan - shorten it, if you can afford to, but don't go beyond the existing end-date.

HTH

no1gymbunny

mrcow wrote:

Okay I think you need to get the paperwork for both of your loans and check out what you are actually paying.

The initial Halifax loan was for £12,000 with 84 monthly repayments of £187.43 @ 7.9%.

In January 07 I requested a settlement figure from Halifax - £9,947.08.

The NatWest loan was taken out in March 06 for £1,900 with 42 monthly payments of £61.95 @ 20.3%.

I don't think I took out PPI on either loan.

This should hopefully make more sense now. Mrcow, I really appreciate your help here. Thanks x

mrcow

Phew....yes! that makes much more sense and it all adds up!

With regards to reducing your repayments the advice above on refinancing still stands. It all depends on how much you want to reduce your repayments by. Personally, I'd always try and cut back on expenditure elsewhere and throw every possible penny at the debt. It will save you money in the long run and you will be debt free much sooner.

Just a thought, but what about approaching Halifax again to see if they will refinance and bring the extra £1450 that you need in at the lower rate of 7.9%? If you do it over 60 months, you'll be savng £18 per month (not much I know but still!) and you won't affect your debt free date which is key. (I'm confused as to why your rate went up to 9.9% halfway through your loan? Maybe you could get the lower rate again?)

Alternatively, if your credit ratingis improved, you could always look at alternative refinancing options, eg. 0% credit cards / other loan companies.

Take care.

no1gymbunny

Thanks. I was praying you'd be around tonight!
The rate didn't increase to 9.9%, my mistake, I was reading the letter Halifax sent me which had an advert on it inviting me to increase my current loan at their 'typical rate of 9.9% apr'. Muppet. Just looking at that letter again, there's another ad - 'enjoy a 3 month break from repayments'. So why is it when I asked to do that last year they said no?

That aside, thanks for the advice. Must get around to posting my SOA if I can bear it. Need to ensure I have plenty of GL to aid me!

mrcow

lol well on their website, their "typical" rate is 6.4%! So I don't think much of their flyer!

They do offer a payment break of three months, but you'll still accruing interest, so you're not really benefitting (unless you were going to use a one month break to pay off your Next debt and then start your actual repayments?)

no1gymbunny

You are clearly someone with their head screwed on. I know I'd still have been accruing interest, but I'd have probably just thought 'hey extra money'. I realise now that this is wrong and need to knuckle down and get sorted. I wrote off yesterday to Halifax & NatWest for settlement figures including any penalties so I can post my SOA and try to figure out the best course of action.

mrcow

no1gymbunny wrote:

You are clearly someone with their head screwed on

lol......No I'm just a tightwad! :rotfl:

Good luck with the SOA.