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Loan vs Credit Card
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pirespt
Posts: 3 Newbie
Hi everyone
I'm in the process of tidying up our finances so we can hopefully get a property early next year.
I've done some credit checks and all is well apart from a minor blemish back in 2007 that I'm getting the company to remove as it was an error on their side.
Now, I have an existing loan that will go until Jan 2016, should I keep it as is or shift it to credit card debt. I have heard that lenders look unfavourably on loans more than they do on credit card debt.
What is your experience?
Many thanks in advance.
I'm in the process of tidying up our finances so we can hopefully get a property early next year.
I've done some credit checks and all is well apart from a minor blemish back in 2007 that I'm getting the company to remove as it was an error on their side.
Now, I have an existing loan that will go until Jan 2016, should I keep it as is or shift it to credit card debt. I have heard that lenders look unfavourably on loans more than they do on credit card debt.
What is your experience?
Many thanks in advance.
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Comments
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Lenders will look at all of your indebtedness, so whether it's a loan or CC won't make any difference: it's all debt. Transferring the loan to a CC is likely to attract a higher rate of interest, so it wouldn't make any sense to do that unless it's 0% one.
Either pay off the loan asap or wait until 2016 before you apply for a mortgage.0 -
BitterAndTwisted wrote: »Either pay off the loan asap or wait until 2016 before you apply for a mortgage.
So you are saying that unless there's no debt even if it is being well managed I can't get a mortgage?0 -
With a loan they will just use the amount you pay in the calculation to assess affordability. e.g. Multiply by 12 and take that off your annual earnings to assess amount can take.
If you move it to credit card - even with a 0% rate, you would run the risk of what happens if you cannot get another card then the interest reverts to higher percentage..
Assuming your loan has always been paid on time, then just await the 2007 blemishs dropping off the file..0 -
A lender will typically deduct;-
- the monthly loan repayment if more than six months to run
- 5% of an outstanding credit card balance each month
from your income before setting a maximum affordable mortgage.
Work out which will cause the most damage.I am a mortgage broker. You should note that this site doesn't check my status as a Mortgage Adviser, so you need to take my word for it. This signature is here as I follow MSE's Mortgage Adviser Code of Conduct. Any posts on here are for information and discussion purposes only and shouldn't be seen as financial advice. Please do not send PMs asking for one-to-one-advice, or representation.0 -
So you are saying that unless there's no debt even if it is being well managed I can't get a mortgage?
No, I said : "lenders will look at all of your indebtedness" at the time you make the application.
If that loan is for a hundred quid it's unlikely to be an issue but if it's twenty grand it would depend on how much you are looking to borrow and how many multiples of salary that might be.
In all cases, it's better no have no debts whatsoever when applying for a mortgage.0 -
Thanks everyone, I am expecting the lender to take out the loan out from the amount they are prepared to lend, I'm comfortable with that.0
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Nearly.Thanks everyone, I am expecting the lender to take out the loan out from the amount they are prepared to lend, I'm comfortable with that.
They will deduct the annual value of the loan repayments from your income before multiplying it out to calculate your borrowing power. Therefore the impact is different depending on the lender's income multiple.
For example, a £200 per month loan payment has an annual cost of £2,400. A 4x salary lender will therefore "tax" you by £9,600 while a 5x lender would reduce your borrowing power by £12,000.I am a mortgage broker. You should note that this site doesn't check my status as a Mortgage Adviser, so you need to take my word for it. This signature is here as I follow MSE's Mortgage Adviser Code of Conduct. Any posts on here are for information and discussion purposes only and shouldn't be seen as financial advice. Please do not send PMs asking for one-to-one-advice, or representation.0 -
If you can "switch" this loan to a credit card, can you not pay it off now with some of your deposit and save up your deposit again?0
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