Some Advice on taking out a new loan

edited 30 November -1 at 1:00AM in Loans
2 replies 465 views
clumsychaosclumsychaos Forumite
25 Posts
Eighth Anniversary Combo Breaker
edited 30 November -1 at 1:00AM in Loans
Hi All,

I'm after some advice on taking out a new loan. The loan will be used to pay off an existing one and a little extra to buy a new car.

I currently have an existing loan that was taken out 18 months ago for £8000 at an interest rate of 8.6%APR. Repayments are £165 a month over 60 months.

The plan is to take out a new loan of £10000, repay the existing loan and then buy a new car. The reason for buying a new car is that I have had this one 6 years now and whilst it has yet to break down or have anything too serious go wrong, it has just hit 120k miles and is almost 13 years old. It's about to get to that stage where things are about to start going that could prove to be expensive. It also costs me £140-£170 a month in petrol to run and the tax is almost £120 every 6 months because of it's age it's still under to old engine size rule and not emissions.

I'm thinking that in the long run it would work out better to have a newer, hopefully more reliable, and cheaper to run and more economical car than what I currently have.

I have worked out that if I was able to get a loan at a 6%APR over a 6 year repayment period the monthly repayments would work out the same, would just mean having a loan for a further 30 months longer than the existing loan has left to run.

If I was to stick with the current car and continue with the current loan, even when the current loan is paid off I would probably still have to save up for a further couple of years to be able to buy a new car without borrowing more money anyway.

Does this make financial sense in the long run? Taking a hit by having to have a loan for longer, but potentially saving money on road tax, fuel and maintenance costs?

I've not fully done all the maths which I will do to weigh up the pro's and con's and i'm aware I may not get the anticipated 6.0%APR due to the 51% of applicants rule, but i'm hoping that I have a good enough credit rating to get this. On Halifax's scoring I have to highest level of credit rating they give, so there is hope! I think...

The only missing figure I have to get is the cost to pay off my existing loan early. Just need to ring Santander to find this out (was £6500 around xmas time last time I checked).

Advice or thoughts please.

Thanks
Barclaycard - £3035.59 // Nationwide - £2661.72 // Clysdale - £471.75 // Halifax - £3815.95 // RBS - £2086.12 // Sainsbury's - £208.54 // Argos Card - £229.99

Total card debt = £12,571.61

Emergency fund - £362/£1000 / Present fund - £26/£300 / Car fund - £20.25/£240

Replies

  • TixyTixy Forumite
    31.5K Posts
    ✭✭✭✭✭
    Obviously only you know what is right for you. But these are the questions I would be asking myself in your circumstances.

    In terms of getting a loan - Are you thinking of applying to the same place you have your current loan with?
    If not then remember that the lender will consider the new £10k loan as additional debt on top of existing loan - and will consider if you have a sufficent income to service both debts (and any other debts you have).

    If you are thinking of getting it from the same place as your existing loan - some people have posted reporting lenders refusing top up loans and insisting the first loan is paid off first (of course plenty of lenders will consider top up loans but certainly they are not so plentiful as they used to be).

    What has changed about your financial situation (or credit file) in the last 18months that makes you think you might get 6% APR on a loan now if you could only get 8.6% then?


    Does it make financial sense to do this? - well that depends on how much cheaper a new car will be to run.

    How much more efficient do you think a new car will be to run? how much will you save on fuel over a year? have you factored in things like whether your insurance might increase?
    Sounds like you are thinking of spending £4k extra plus the value of your current car on a new car. Do you need to spend that much to get a car that will be cheaper to run?

    Regarding the extra 30month of the loan compared to the old one - well only you know your circumstances but I would suggest thinking carefully about what you might be planning to do in 5years time - might you be hoping to buy a first house at that age? or move to a larger house? or have kids? etc
    A smile enriches those who receive without making poorer those who give
    or "It costs nowt to be nice"
  • RafterRafter Forumite
    3.8K Posts
    All good points from Tixy. Unless you are earning £40k+ I can't see anyone offering you £10k at 5% because they will see c. £16k of loans against you when assessing the application (your current loan plus the new one).

    Your post suggests you can afford current monthly loan payments but not much more, so I think you need a plan B.

    R.
    Smile :), it makes people wonder what you have been up to.
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