What should I do ? suggestions

Dave90

Hi all , I currently can't decide what to do , I have made some really silly decisions in the past couple of years that's made me rack up some debt. which I am desperately trying to pay off as quick as I can. I had many debts but I've managed to get it just down to the one now. which is :

Balance left : £12798.52
Payment : £222.67 per month
Settlement figure as of 31/3/14 :£10508.79
Interest rate : 11.3%

I still have 55 Months left of this agreement.

Now the thing is I have £6640 saved as I've been good by selling things and been putting £270 per month into my savings.

however i'm trying to decide what to do , I quoted a loan from my bank of £3868 to maybe pay the settlement figure of the loan above. by including my £6640 savings. This would cost me £340.80 a month for 12 months to pay back . totaling £4089.60. But i'd also be putting if i got this loan £150 into my savings to help pay off earlier if Im able to.


any suggestions?

thanks

Lovetoread

I would work out how much interest you're currently paying with your current lender, and work out how much interest you'll be paying if you got the bank loan. If the interest is lower with the bank loan then I'd go for the loan.

Also, your settling fee may affect your credit rating, as this will show that you have borrowed money but can't afford to pay it all back. Best case scenario would be your current lender won't lend to you again. Worse case would be it will effect your credit score.

I'm no expert, hopefully someone will be along to give you better advice, but this is what I would do.

Tixy

Settling a loan early wouldn't mean it looked like you cannot afford to repay it. It would be unlikely to cause any issues with future credit.

Will you definitely be able to afford the £340 a month every month?
It looks like the APR on the new loan will be only very slightly lower than the on the existing loan - is that right?

Are you able to make partial overpayments on your existing loan? and without penalty?
If so I'd probably just repay your savings off the current loan balance, and continue paying the existing loan (making further overpayments as you can afford to do so).

Dave90

Tixy wrote: »

Will you definitely be able to afford the £340 a month every month?
It looks like the APR on the new loan will be only very slightly lower than the on the existing loan - is that right?

Hi thanks for the reply, Interest rate on current loan is 11.3%.

Just checked the quote I got the interest would be 11.9%

I could afford the £340 a month , as Im currently paying £222.67 and putting 270 into my savings per month.

Would I be best keeping my £6640 savings and continue putting £270 each month towards my savings? so eventually id have enough to pay off settlement figure, as surely it will lower each month. because wouldn't I get charged interest each month on the £270 if I were to overpay my current loan?

sorry for so many questions haha.

Tixy

On a loan the interest you pay is based on the outstanding balance each day,

If your current loan allows partial overpayments without penalty (and generally newish loans do) then the cheapest option for reducing interest will be to pay off the £6.6k now so that from next month you will only be charged interest on around £4k not on around £10k.

Then you could either make overpayment each month to bring the balance down quicker (cheapest option if allowed) or start saving again and make a new overpayment when you have saved up say an extra £1000 and again after the next £1k until the loan is fully repaid.

Dave90

got a quote from current loan provider. If i were to pay £6000 just now ,

The loan would go from 55 months left to 21 months , still 222.67 a month with a final payment of 423.64.

hmmmm.

killerpeaty

Hi Dave, with any compound loan the more you pay off early, the better off you will be. Have you tried playing with loan interest calculators?

Are there any fines to your overpayment? Do you have anything other than this 6k to fall back on? You won't be making nearly as much interest on your savings as you are paying on that loan.

Dave90

no there isn't any fines for overpaying . Don't really need anything to fall back on if i pay the 6k as I wont have anything that can go wrong lol

so don't really know whether to keep it in savings till ive saved enough for settlement figure or pay it towards the loan.

Tixy

Dave90 wrote: »

so don't really know whether to keep it in savings till ive saved enough for settlement figure or pay it towards the loan.

Paying what you have towards the loan now will mean you pay less interest than waiting until you can pay the entire balance.
So that is what would generally be advised on MSE. On the flip side you lose the cushion of your savings.

bargainbetty

You might consider the option of having it both ways - sort out a decent bank account and put three months living expenses into it. Once that safety cushion is in place, start making overpayments to the loan. Check to see what you are allowed to do, in what increments and how often, and throw your money at the debt till it is gone.

Don't lose your security net entirely though - no point paying it off if something goes pear-shaped and you have to borrow again.

Best of luck.

Physics

Dave90 wrote: »

Balance left : £12798.52
Payment : £222.67 per month
Settlement figure as of 31/3/14 :£10508.79
Interest rate : 11.3%

I still have 55 Months left of this agreement.

Now the thing is I have £6640 saved as I've been good by selling things and been putting £270 per month into my savings.

Stop putting money into 'savings'. Your savings are not going to be earning you 11.3% interest. It will be far, far lower. Every pound you put into 'savings' is costing you over 10p a year in interest payments.

Ignore the settlement figure. It would be good if you had that money, but you don't.

Work out how much money you need to have as a 'safety net'. If you are living with your parents, I'd suggest £1000. If you are on your own, I'd suggest 3 months rent. I'm going to estimate this at about £3000.

Take that remaining £3600 and pay off some of your debt. This is as good as putting your savings into an account paying 11.3% interest. You'd never miss that opportunity. Don't miss this one.

Every penny you can muster, you need to use to pay off that debt. 11.3% is a ridiculously high interest level, and there is no possible better use for your money than paying that off. I'd even cut back on luxuries while you do it - treat every luxury item you buy now as being on 'credit', costing you 10% more every year you haven't paid it off.