AA Car loan

aimex

My mate has an £6,000 loan with AA which he is trying to pay off but hes had it for a year and a half and it doesnt seem to be reducing very rapidly, even though his monthly payments are £300. Any suggestions for what he could do - i just hate the fact that hes paying that much out a month yet it doesnt seem to be reducing the loan amount.

I did think about utilising the interest free credit card - i think virgin is currently offering 13 months. And then he would only pay the minimum each month whilst trying to save to pay it off. But i dont really know too much about this or whether its the best option in terms of credit rating. Although i guess having the loan as it currently stands is effecting his credit rating anyway!

Can anyone offer any suggestions?

Thanks

Aimex x

Phoenix79_2

Whats the apr on it? And how long is he paying it off over?

aimex

not sure how long but he says its a low apr - one of the lowest around when he got it - 5.9ish?

Phoenix79_2

Thats a very good rate for a loan.

aimex

yeah i think it was 6.0 actually and yes despite it being a good rate its a burden and does not seem to be going down. he cannot do anything until its paid off either eg save for a house. any ideas?

Phoenix79_2

Well its got to be paid off somehow hasn't it? You can't spend £6k on a car then complain that you have to pay for it. A £6k loan at 6% over 2 years will be about £262pm. You say he's paying £300pm? That would indicate he's either got PPI on it or he's coming towards the end of the loan (ie only about 6 months to go if he's had it 1.5 years). Or perhaps its for more than £6k?

aimex

Hi, thanks for the reply, although i think youve kinda misunderstood my post. Im not saying its not a good value loan, and im also not saying that he hasnt got something out of it, ie the car. But I think he should pay it off cos its too much of a tie having to pay out that much a month, especially when hes thinking of trying to save for a house. Hes already saved up some money to pay the loan off but doesnt have the whole amount, so thats why i was wondering what options there were out there that would enable him to pay it off so that he wouldnt be paying out (ie only the minimum on a credit card) so that he could pay it off quicker. Or is it just best to sit tight and save up the money and then pay it off.

Think he originally borrowed £8000 and the amount now left to pay is £6000.

Cheers for your help

Phoenix79_2

My advice would be too scrimp and save more, sell things that he doesn't need and try to get the thing paid off asap. The last thing you want when saving for your own pad is debts. Alternatively he could sell the car and buy a cheaper one and put the difference plus the amount he has already saved towards the debt (hopefully clearing it)

See....if you try and get the amount put on LOB cards and 0% BT cards then the debt is still there. You said in your post that if the debt was on cards then he would only only pay the minimum off while saving for to pay the rest off. He's best off just saving and overpaying on the loan every month thus shortening the loan term and therefore paying less interest.

Sorry for waffling on!

aimex

Ok, thanks for your help. Ive told him what youve said and hes gonna sell some of his things to raise a bit more cash and hopefully pay it off at the end of jan/feb. Thanks again. x

darkcloudi

With the AA Car Loan regardless of extra payments made it will not reduce the interest paid. All it will actually do is pay it off quicker.

I have a AA Car Loan and was hoping the extra payments I made would reduce the interest amount that I need to pay however discussing this with customer service recently I was wrong as my loan actually suppose to end in Oct 07 however will now end in Feb 07 as I made regular additional payments.

The interest that needs to be paid is set at the time of signing the agreement and even though I am paying it 8 months sooner it made no difference to interest I will pay AA.