Taking a larger loan to get a better rate

benshort

Hi,

I need to replace my car as its getting old and has developed a few problems that are going to cost quite a bit to fix.

I want to spend about £8000 half of which I have in savings. I bank with the co op who do the following loan.

5.7% APR representative on loans between £7,500 to £14,950 over 1-5 years.

I only need £4000 but a loan for that much has an APR or 18.9%.

So what I'm thinking it to take the £7500 loan and paying back £3500 straight away. This means I would get the better APR etc.

The T&C's seem to suggest that this is ok.

6.4
In addition to your obligation to make payments to us in accordance with your loan agreement you may also settle part of
your debt early. Where you do this we will keep your monthly payments the same (other than the final payment which may
vary) and reduce the outstanding term so you will repay your debt earlier.

What do people think? Is this a sensible solution?

Thanks

Ben

kloana

benshort wrote: »

Hi,

I need to replace my car as its getting old and has developed a few problems that are going to cost quite a bit to fix.

I want to spend about £8000 half of which I have in savings. I bank with the co op who do the following loan.

5.7% APR representative on loans between £7,500 to £14,950 over 1-5 years.

I only need £4000 but a loan for that much has an APR or 18.9%.

So what I'm thinking it to take the £7500 loan and paying back £3500 straight away. This means I would get the better APR etc.

The T&C's seem to suggest that this is ok.

6.4
In addition to your obligation to make payments to us in accordance with your loan agreement you may also settle part of
your debt early. Where you do this we will keep your monthly payments the same (other than the final payment which may
vary) and reduce the outstanding term so you will repay your debt earlier.

What do people think? Is this a sensible solution?

Thanks

Ben

Here, you need to watch out for the term you take the loan out over. If you took 7.5k over the same period that you would have took a 4k loan over, the monthly payments would be stonking. And would remain so, even despite you having paid a lump sum.

So, the 7.5k term would need to be adjusted accordingly, i.e. made longer (unless you can afford especially large repayments). Adjusting the term for longer (and actually paying over longer) would eat into the interest saved, as 5.7% would be charged per annum, and there'd be more 'annums' over which it'd be applied.

I did what you're looking to do a few years ago. Needed a similar amount, but was offered an APR not much under 20%. Got 7k instead, paid a lump sum. In rough maths, and all things considered, I saved about £800 all in all.

ch3101

7500 over 5 years wouldn't be too bad, pay back 3500 straight away.

The payment may be slightly higher than ideal but overall you'll save yourself loads.

kloana

ch3101 wrote: »

7500 over 5 years wouldn't be too bad, pay back 3500 straight away.

About £150-155 per month, I figure. And that's on the full debt...wiping 3.5k off immediately will bring that 5 years forward by quite a bit. When I did similar, it wiped off about 14 months there and then (good online banking system - HSBC - which did the maths for me there and then).

Definitely do it if you have the discipline to dump the 3.5k straight back off the loan. And if you make extra overpayments too, you'll be quids in, in the end.

gb12345

benshort wrote: »

5.7% APR representative on loans between £7,500 to £14,950 over 1-5 years.

That's great if you actually get the headline rate - but what if you aren't their ideal customer and offer you £7,500 at 12.9% or 19.9% or they decide that they can't offer £7,500 at all and decline you.

You're then back at square one, but with an additional loan search on your credit history.

benshort

gb12345 wrote: »

That's great if you actually get the headline rate - but what if you aren't their ideal customer and offer you £7,500 at 12.9% or 19.9% or they decide that they can't offer £7,500 at all and decline you.

You're then back at square one, but with an additional loan search on your credit history.

What sort of thing will they base that on?

gb12345

benshort wrote: »

What sort of thing will they base that on?

Who knows, it is different for every lender and each lender also changes their criteria from time to time. Only 51% of loans given have to be at the headline rate for them to be able to call it a representative rate.

Some factors to consider though are salary/credit ratio (for all your credit), affordability, etc.

benshort

gb12345 wrote: »

Who knows, it is different for every lender and each lender also changes their criteria from time to time. Only 51% of loans given have to be at the headline rate for them to be able to call it a representative rate.

Some factors to consider though are salary/credit ratio (for all your credit), affordability, etc.

Right. More things to think about then. I don't actually have any credit cards or loans etc currently. I do have a £1000 but have only dipped into it by the odd £100 a couple of times.

gizmo111

My daughter has just done this with HSBC. £7000 loan at 5.9% or the £4500 she wanted at 18.9% !!
Payments over 2 years are £309 - she has made overpayment of £2500 knocking about 8 months off the length of loan.

property.advert

Up to £7500 they'll go on information to hand and through credit reference agencies but go over this and they'll maybe want payslips etc.

Why ? well, £7500 seems to be a tipping point for additional documentation.

That may or may not be an issue.

kloana

property.advert wrote: »

Up to £7500 they'll go on information to hand and through credit reference agencies but go over this and they'll maybe want payslips etc.

Why ? well, £7500 seems to be a tipping point for additional documentation.

That may or may not be an issue.

Probably not, as s/he banks with the loan provider.