What's the best way to refinance some debt?

sh856531

Hi Guys

I took out a loan for 13500 last year and have been paying around
£290p/m and have probably payed off about 2K or there abouts.

Although I technically can afford them the monthly amounts are becoming more than I want going out - so I'm thinking about downsizing my car. This would give me about 8 - 9K that I could devote to reducing my debt.

My question is this - what is the best way to do this? If I basically send that 9K to my loan provider - would my monthly payments come down automatically or would I have to renegotiate the loan with them?

Really all I want is to reduce my overall debt as much as possible and end up with a lower monthly payment each month. I'm just not sure how to go about making that happen as I've never actually had a loan before

Many thanks to anyone who can advise

Thanks

S

paddyrg

If you have some cash lump sum, certainly put it against your loan! What I would suggest (with no qualification to do so) is to keep maybe £1-2k back as a slush/rainy day fund, then put the rest against the debt. Likely your monthly payments would remain the same, but the term would be reduced (ie you'll clip a few years and most interest off your debt). If that isn't what you want, talk to your lender and make sure you get the best result you can.

The cheapest option is to reduce the term, not the payment, BTW. :-)

sh856531

paddyrg wrote: »

If you have some cash lump sum, certainly put it against your loan! What I would suggest (with no qualification to do so) is to keep maybe £1-2k back as a slush/rainy day fund, then put the rest against the debt. Likely your monthly payments would remain the same, but the term would be reduced (ie you'll clip a few years and most interest off your debt). If that isn't what you want, talk to your lender and make sure you get the best result you can.

The cheapest option is to reduce the term, not the payment, BTW. :-)

Hi matey,

Thanks for that. I'm not necessarily aiming for the cheapest option in absolute terms. Really I'm aiming for the more manageable solution.

If I pay a lump sum to my loan provider and then give them a call - would they typically allow me to rearrange the loan so that it was over the same term but on the overall much lower sum of money? Or would they tell me to beat it?

I was also wondering about the possibility of paying as much as I can off on my loan in one go, and then potentially getting a second loan to pay off the remainder. The reason being that I'm sure I could get a better rate if I shopped around a bit more than I did originally.

I'm not really sure about the logistics of taking out one loan to pay off another. I'm not sure if it would do my credit score any good to do that?

Thanks again

S

paddyrg

Hiya,

It is totally up to you if you keep back a slush fund, but I suggest it - that way any shock bills don't drive you into the hands of yet another lender, or worse still a payday loan company!! Think of it as a buffer.

As for reducing the payments as well as/instead of the term, just talk to the lender. Tell them you want to pay £x off the loan in a lump sum, and reduce your monthlies, and reduce the term, see what they can offer.

And as for taking out a loan to cover the loan - frankly as you'd be borrowing under £7500, you'll likely get a worse rate once you allow for arrangement fees, etc., and your credit report will show you already have a large outstanding sum... Sort out the first payment first, give that a chance to reflect in your credit report, then look at refinancing, see what the options are. My 2p, anyway ;-)

EDIT: PS - a 'consolidation loan' (a loan to pay off other loan(s)) is seen as 'extra borrowing' as they can't force you to pay off the first loan, or run it up again - this is why it is seen as an extra risk, rather than a risk reduction normally.