Should I pay off this loan?

gallaghb

Hi

Since October last year me and my wife have really cut back and started paying off our debts. We earn a decent salary, jointly £69k, no kids etc. But through car finance, loans for wedding, credit cards etc had racked up debts of about £40k.

A change in jobs allowed us to sell one of our cars which we owned outright and this cash paid off the car finance which was the highest APR loan we had at 10.5%. Have just paid off another small personal loan in full and have now paid off all the credit cards which weren't interest free.

Now left with £5.2k on 0% credit cards, paying off £1400 per month so be done in 4 months time.
Then all we will be left with is a personal loan of £15k over 60 months, 5.7% APR. The settlement figure right now is about £11600 and there are 45 payments of £287 left so would save about £1300 paying off early.

By the time I save up the money to pay that loan off it would only save us £600 paying it off early. Now I know it would save me money long term if I paid the loan off but I feel like we would be better to save up a deposit and get on the housing ladder sooner with the way things are going in the market - what would you do?

mum2one

Sounds like youve been going great guns with the repayments and plans... it could be me, but yes I can see where your coming from re saving for a depoist/housing ladder, but if you have the loan going out - then surely that would reduce any mortgage offer? x

-taff

How much of a mortgage were you hoping for, how much deposit would you have towards it? And ho much of your salary would you be giving over to the mortgage?

After you work out those sums, you'll be able to also work out roughly what you could get bearing in mind you'll have to declare your loan payments if you want a mortgage before your loan ends.

On_my_way

The way I see it, and I might be wrong, the less debts against your name when you go towards applying for a mortgage the better-so I would say pay everything off as soon as you can

Pipz

Just a thought and I may have misunderstood but wouldn't it be better to direct the extra payments you're applying to the 0% credit cards to the 5.7% loan?

Unless of course the 0% rate ends within the four months.

The loan will affect the amount you might be lent for a mortgage. Your overpayments can generally be used to reduce the monthly loan payment (marginally increasing the amount you might be lent for a mortgage each month) or to reduce the term of the loan, the latter generally saves more interest but please check your product's terms and conditions for the specifics.

In summary: clear all debt (highest APR first) before a mortgage application will put you in the most secure position.

gallaghb

Thanks for the replies.

Hmmm I hadn't thought it would make much difference to the mortgage app as we pay £800 per month rent now, the mortgage payment would be around £1400 on a £300k house, say £40k deposit. Which would take us 2.5yrs to save. There would at that point still be a year left to run on the loan.

We currently have a spare £1400 to save/pay off debts a month. So it's not as if the mortgage repayments would be an issue but understand they'll still only lend a certain amount based on our income and other commitments, like the loan.

Both credit cards interest free period runs out before the end of this year.

So I think the answer is pay it off! I'll pay some off each month after the cards to reduce the term which appears to save the most amount of interest.

giblet1979

Hi gallaghb,
After clearing other debts, we saved for a deposit alongside overpayments on a loan. As we found a house earlier than expected, we had about £3500 left on the loan (monthly payments of about £220) and this didn't cause too many problems with the application, although we did have to pay higher interest due to only having a 10% deposit. It's fantastic to hear how you've been dealing with your debt to date!
Gib x