Savings or pay off student loan?

WLITC

I've started putting aside some savings each month but I'm unsure whether I'm better off saving or repaying my student loan.

The Student loan is basically one of the old style loans, so its pegged to inflation, so this past year I've been paying over 5% interest. Currently the loan is deferred but its due to restart in May I think. Balance is about £2500. Any advantage to not clearing it?

wastedtalent

Are you sure the rates not 1.5%? Keep it, it'll be the cheapest load you ever get!

http://www.studentloanrepayment.co.uk/portal/page?_pageid=93,6678642&_dad=portal&_schema=PORTAL

rb10

The OP states that they have an old-style loan: http://www.studentloanrepayment.co.uk/portal/page?_pageid=93,6678397&_dad=portal&_schema=PORTAL

Repaying your loan is a sensible option where you have the money to do so.

WLITC

thanks rb10, thought it was sensible to pay it off.

JimmyTheWig

It does depend on a few things.

For example, it is worth keeping some savings as an emergency. E.g. if your car breaks down and needs urgent repairs. Would be annoying to repay this 5% debt to then need to borrow at 18% on a credit card a few months down the line.

Or are you planning on buying a house before your student loan would be paid off in full if you stick to the minimum repayments? If so, the level of outstanding student loan debt won't be counted in terms of the mortgage application but the savings built up may be needed as part of the deposit.


But in general I agree. It makes sense to pay off debt with savings if your debt is costing you more than your savings are earning you. Unless you see inflation dropping significantly in the near future (I don't) or savings rates increasing significantly in the near future (again, I don't) then this is going to be the case so in general I'd say pay it off.
It also gives a lovely warm feeling when it's paid off!

atush

I agree- keep an emergency fund.

WLITC

JimmyTheWig wrote: »

For example, it is worth keeping some savings as an emergency. E.g. if your car breaks down and needs urgent repairs. Would be annoying to repay this 5% debt to then need to borrow at 18% on a credit card a few months down the line.

Or are you planning on buying a house before your student loan would be paid off in full if you stick to the minimum repayments? If so, the level of outstanding student loan debt won't be counted in terms of the mortgage application but the savings built up may be needed as part of the deposit.


But in general I agree. It makes sense to pay off debt with savings if your debt is costing you more than your savings are earning you. Unless you see inflation dropping significantly in the near future (I don't) or savings rates increasing significantly in the near future (again, I don't) then this is going to be the case so in general I'd say pay it off.
It also gives a lovely warm feeling when it's paid off!

Well no plans for a house, especially as I only came out of BR last spring, but I do want to upgrade my bank account to a regular account (currently a basic bank account) so I'm thinking perhaps I should save a couple of grand and keep in my account and then apply in late spring (hopefully the savings with put me in a better light) and then if its approved, keep aside £1000 as an emergency fund and then use the remainder to pay down the student loan. I could then either just let the balance clear itself overtime with the monthly direct debit or pay off an extra chunk each month until its cleared.

JimmyTheWig

Sounds good.

Would also like to add that so often we hear of people going bankrupt and quickly slipping down the same route again. Sounds like you've really turned things around for yourself, so well done.

CLAPTON

JimmyTheWig wrote: »

It does depend on a few things.


Or are you planning on buying a house before your student loan would be paid off in full if you stick to the minimum repayments? If so, the level of outstanding student loan debt won't be counted in terms of the mortgage application but the savings built up may be needed as part of the deposit.


QUOTE]

No so
many lenders do take the student loan debt or repayments into consideration when accessing affordability

JimmyTheWig

CLAPTON wrote: »

No so
many lenders do take the student loan debt or repayments into consideration when accessing affordability

As I understand it, the level of debt is not taken into account, but the monthly repayments are.
As I understand it, the monthly repayments are not affected by the level of debt. (Might not be the case on this age loan, I can't remember.)

So, say, paying off £1000 from the loan won't help affordability. But an extra £1000 deposit might make all the difference.
[But paying off the whole thing would help affordability.]