pay off loan or not?

doughuelas

Hi

currently i have a bank loan and car finance which will be paid off September 2012

currently my car finance has a balance of £4699

and my bank loan balance is £4333

i have £35k in savings and my goal is to save £50k by the end of 2012

i try to save £500 every month (barring December) on top of paying off my loans every month

but i am now thinking whether i'd be better to pay off the loans as the interest on the loans is much more than the interest on my savings?

but i am unsure how much better i would be to do this?

does anyone have any advice - or be able to quote any equations that i can use to get a rough figure

Jonbvn

As you state that the loans have much higher rates than your savings, pay off the loans ASAP. Make sure there are no penalties for paying off the loans before you do so.

Check out the MSE link on this very subject.
http://www.moneysavingexpert.com/cards/pay-off-debts

greenface

add together how much you are paying on your car and loan each month(any other debts you can clear. )
Work out how much interest you get back each month from just over 9k

no brainer + put the money you should have been paying to the banks into your own savings and you will hit your target quicker

doughuelas

greenface wrote: »

add together how much you are paying on your car and loan each month(any other debts you can clear. )
Work out how much interest you get back each month from just over 9k

no brainer + put the money you should have been paying to the banks into your own savings and you will hit your target quicker

thanks for the advice, i have an alliance and leicester loan and car finance with FORTIS...i may be wrong on this subject but i'm sure A&L add all the interest that i would've acccured during the term of the loan at the very start meaning the my repayments are the same every month - no sure about FORTIS but can find out

would i still be better off paying the balances in this case? the reason i ask is because most of my savings are tied up in ISA's so i want to be sure that i'm making the right decision before taking them out of here

many thanks in advance for any additional advice

Jonbvn

doughuelas wrote: »

i may be wrong on this subject but i'm sure A&L add all the interest that i would've acccured during the term of the loan at the very start meaning the my repayments are the same every month - no sure about FORTIS but can find out

What you describe would be very unusual for a high street bank. You need to confirm this point before you pay-off the loan.

doughuelas

Hi all,

its been a busy few months

with it due to be a new year i need to get my finances inline

please bear with me!

DEBT
car finance; 3,691 (end payment sep 2012)
loan; 3,201 (end payment sep 2012)
credit card; 1,099 (0% for 12 months)

SAVINGS
Isa's; 23,100
Savings accounts; 3,000 (this years cash ISA is maxxed)

FUTURE MONEY
gran mother; 12,000 (i paid off the remaining balance of her mortgage and will receive this money back when she passes away)

AIM FOR FUTURE
upon my gran dying (so hopefully not for a long time yet - but have to acknowledge she has lung cancer that is only being kept at bay with chemotherapy; it will never be completely cured) i would love to be in the position to buy her house. My dad and aunties have said they cannot bare the thought of them keeping a hold of it but i would like something that still connects me to my gran

other properties in her area are going for around £80k

therefore i would apprecaite any info that could be transmitted that would help make this achievable

STATS
- 26
- live at home
- apart from re-paying the outstanding debts i have no real other outgoings
- no dependants
- earn £19,500 per year which will increase with each increment in my banding for the next 5 years

ideally i would love to get as much together for a deposit/or look into offsetting the mortgage against my savings (i am not really too sure what would be best)

would be hoping to be mortgage free by 30 so i could pump all the rest of my income into an NHS pension scheme

i have posted previously regarding paying outstanding debts off early - it looks as though i will get charged extra to pay them off early. to pay off loan off right now it would cost me approx £3,370 on top of this i am unsure as to how this can be an advantage (i cant get my head around it)

i would have to use my isa cash to clear the debts which would leave me not having to pay them every month obviously but then the extra income i would have would just be put in a crap returning savings account anyway??

i am hopefully getting the completely wrong end of the stick and eventually the penny will drop!

also, i am now taking an interest regarding investments. my mother took out some investment product with A&L last year (i dont know what this product may be)

she invested 4k in things through legal and general but had to put 1k into an isa (for 1 year)

it has just matured and she says she has made £348 profit from

i was thinking in the current climate this is a decent return...

this is surely something i have to consider

i would really appreciate any info/advice that anybody could give me to get my finances in order and maximise any potential saving power

D

jimjames

One question - in your first post (May 2010) you had £35k savings, aiming for £50k in 2012.

You've now dropped to £26k but without paying off the loans. What happened to go backwards so quickly? Saving over 50% of your gross income is likely to be tricky I would think.

doughuelas

i paid off 12k towards my Gran's mortgage as detailled in previos post

jimjames

doughuelas wrote: »

i paid off 12k towards my Gran's mortgage as detailled in previos post

Sorry I'd missed that, does it count in your £50k target though? Either way well done for being able to save so much of your income, its definitely good to get into the habit.

In terms of investments a fund based ISA is worth considering if you are looking for investments other than cash. I use Hargreaves Lansdown who have a flexible ISA account with low charges and many funds available in it. It would be worth checking what the A&L product was but now that they are Santander many people would advise against using them especially as banks investment products are rarely best value.

doughuelas

thanks for ur help

yes, i have counted the 12k in with my target

so i still technically believe i have 38k

would the isa you mentioned still be worth taking a look at? (in terms of my target date; sep 2012 being classed relatively short term)

i would be interested to hear from yourself or anyone else that may have opinions regarding potential mortgages or how to offset the mrotgage to make the money work harder for me

D

jimjames

If you need the money in 2012 then a share based ISA isn't suitable but you'd mentioned considering investment products from a bank. HL Vantage is far more flexible than most bank products.