Best course of action?

WoodsterT

Hi, long time lurker and first time poster.

I took out a Hire Purchase for a car back in July 2012 for £7000 over 5 years, under Black Horse. In December of that year, Lloyds TSB (my bank) rang to say that I was eligible for this HP to be transferred to a Personal Loan on my bank account as the interest rate would be less. Unfortunately this interest rate is still very high: 21.5%, but since it seemed a 'good deal' I took it. They paid off the HP and transferred the remainder of what I had left to pay off into a Personal Loan on my account.

I have, however, had numerous people say to me "Take a look at a lower APR loan, borrow the settlement figure, pay off the Lloyds loan and then pay off the new loan with the lower APR/monthly payments" but I'm not sure if this is an option, or if it is a suitable one? There are a lot of loans that, even at the maximum of £6000 I have left to pay off (I am not sure of an exact settlement figure yet,) have an average APR of around 6%

Please go easy on me, I'm young (20) and very new to all of this and am not fortunate enough to have the support locally (I.E. home/family) but I am keen to learn from the experience. I should point out this isn't a whinge post of how I regret ever getting the HP, because I don't - I'm glad I made the mistake of giving into finance earlier in life so I know never to do it again, "Don't spend what you don't have" and all that. I'm in a fully comfortable full-time job with a decent salary for my age and I have never had any problems paying the £175 a month back on the loan, I'm just curious to see if I'm getting the best value, which at 21.5% doesn't seem to be the case.

I'd just like to post here and get some feedback and suggestions, it would be greatly appreciated. Apologies for the long post many thanks.

bigadaj

There's no harm in trying to find a cheaper rate, the problem is the rate you are offered is down to your credit file. The banks only have to give those advertised rates to 51% of successful applicants and they'll reject a fair few so it would be a small percentage of those that originally apply.

There will be little harm in making a single application and if you're rejected leave it for six months and give it another go. The problem is that the bank your applying for a loan with will assume this is new credit and in addition to the loan you already have, so if you borrow another £6000 then you'd normally need to earn at least £24k to have a decent chance of acceptance.

Five years for a car loan is probably too long, as the car devalues, ideally don't borrow but if you do then I wouldn't borrow for more than three for a car.

Assuming you can trust yourself then get a credit card and put your normal spending through it, as this improves your credit profile and should open up better deals in the future.

WoodsterT

If you mean in terms of my score, I'm A-OK (have not missed a payment for any official borrowing before) so I'm all green on that end, if that's what you were meaning?

I see what you mean about the fact that the other bank may view it as 'borrowing more' so that could be a concern, but like you say - no harm in trying. Are there any particular options I should look into or to simply find a "Low Interest Loan" ? (Sorry for the daft questions..)

What do you mean about a credit card? Putting the loan onto that instead?? (Again, as above, sorry.. )

bigadaj

It's good that you've made all your payments ok, my point with a credit card is that it can help your credit profile as well, show potential lenders you are managing credit well and pay on time, younger people often have limited credit which is sometimes called a thin file, so more evidence of you responsibly using credit is helpful.

Credit cards can be useful as you get a time that's interest free if you pay in full, you get section 75 cover meaning if you buy something and the company goes bust, fails to deliver or it isn't as described you claim the money back from your card if the retailer won't pay. There are also cards with rewards or cashback, but they may not be available if you haven't had a card before. Just remember it's not free money and you have to pay it back. Again if you have a credit card for sometime you might get 0% deals with just a relatively small fee which is better than a loan.

Have a read through the loans section on the main site as well.