Abbey

btbloke

My parents have recently taken out a 10K loan for me for home improvements on a house I'm about to buy. They agreed to do it so that it wouldn't show on my mortgage credit check. They are due to finish paying their mortgage in 2 months with Abbey so went to Abbey for the loan. Decided on 10K over 8 years at 6.3% which sounds quite good. The plan is for me to pay off the loan in a few months from my mortgage company. My parents have now decided to do some home improvements themselves and went back to Abbey to see if they could get another loan. They have been told that they can't have another one but can extend their current one to 20K. However, once they looked in to this they were quoted a rate of 9.9% for the total amount and they cannot pay part of it back early only the whole amount. Why would the interest rate go up if they are borrowing more? They now want to look elsewhere but are concerned about foot prints on their credit file. Is there a way to avoid this?

DC

regularsaver1

be careful - your mortgage company might not lender you the additional money in a few months time. one to affordability and 2 due to their assessment for a valuation

btbloke

Thanks for your concern. I have been told that the mortgage company will lend up to 90% of the valuation. Once I have completed work on the property I'm hoping it will have increased in value enough to gain a secured loan (to keep the payments low). Then once the 2 year tie in period is up I would hope to renegotiate my mortgage and include the secured loan.
Does this sounds viable?
Why would Abbey increase the interest rate, combine the 2 loans and not allow early payment? This seem confusing.

Thanks for any help you can offer

nomoneytoday

btbloke wrote:

Why would Abbey increase the interest rate, combine the 2 loans and not allow early payment? This seem confusing.

The higher rate is because they perceive a higher risk. The odds on defaulting on £20k are higher than failing to pay back £10k

The early payment and combination is probably because the loan is too new, and will cost them to process it.

btbloke

In that case why is it that all banks/loan companies adverts show a decreasing interest rate as the amount to be borrowed increases?

mrcow

Hi Mark,

It's all risk assessed. You'll only get these lower rates if you are deemed low risk. It will depend on earnings verus borrowing etc.

Your parents may have moved themselveds out of that category with the increased request thus the increase in APR.

nomoneytoday

btbloke wrote:

In that case why is it that all banks/loan companies adverts show a decreasing interest rate as the amount to be borrowed increases?

Because the cost of processing the loan as a percentage goes down.
Lets say it costs £200 (made up figure) to setup the loan and do the paperwork. You would need a higher %age rate to recoup this.

scott_lithgows

I really would avoid Abbey.I had more trouble with them in the 2 years after they took over(ruined) my building society than i,ve ever had in the last 40 years.After closing my mortgage,cashcard and deposit account with them,they then caused more trouble for my family after my Dad died,result was my whole family then closed all their accounts with them(about 15 in total),if Abbey works out as a "best-buy" at anything,I would still take the next best even if it was dearer.