Loan Guidance

[Deleted User]

Hello!

I am in a bit of quandary at the moment with regards to loans.

I currently have a loan at 5.0% that has 49 months remaining of a 62 month period.

I have been offered a loan at 3.8% that would be for 60 months.

The pay-off loan value is £11,900, the new loans limited to £10,700 by my bank at the 3.8% rate (weirdly). I would make a payment of £1200 from my savings to cover the difference.

The new loan would be over 60 months (not ideal) but at 3.8%, so my fixed repayment would drop from £265, to £194, but i would set up a direct debit to over pay by a minimum of £150, thus reducing the time to under 3 years. (As an aside they won't offer me the decent rate over a smaller time frame - i have no idea why..)

The new loan provider make it much easier to make overpayments (just make it) compared to the old who you have to phone up and notify them every single time!

Thoughts?

The other curve ball is that me and my partner want to get a house next year, and i don't know if this will affect a mortgage application by having a loan with an increased time frame on it?

Any thoughts or opinions?

Nasqueron

Have you actually been offered that second loan or just one of those "you might get this rate" offers? I just ask as there is no guarantee to the bank that you will pay off the first loan with the second one - you might then have 2 loans running and be deemed unaffordable - getting into more debt to pay off debt is not the recipe for good credit rating especially if you want a mortgage with this loan running for 5 years - could you afford to repay that and the mortgage?

[Deleted User]

So I have been offered it, all i need to do is sign and send the paperwork back.

I won't be getting into more debt to pay off debt at all, I am clearing my existing loan with a smaller loan and a chunk of my savings, and i am then making regular over-payments to reduce the time frame down to around 2 and a bit years instead of the 49 months i have to run on the older higher rate loan.

The loan term may be 5 years, however due to the overpayments i'll be making i will be taking around 22 months off every 12 month payment period (if not more).

But, i could comfortably afford both loans and a mortgage if needed (not that i will need to as i will only have the smaller loan to pay..

gazman100

My question would be if you can pay some off with a chunk of your savings why not borrow less? 3.8% loan interest has to be higher than the savings?

Foxy-Stoat_3

Why not over pay the existing loan by a minimum of £79.00 and leave your savings where they are.

You will avoid early repayment charges as well.

lee111s

I agree why not just overpay the current loan if you have the money available to do it?

[Deleted User]

Foxy-Stoat wrote: »

Why not over pay the existing loan by a minimum of £79.00 and leave your savings where they are.

You will avoid early repayment charges as well.

The existing loan is a hassle to make extra payments, you have to phone up every time you want to make any payment or you don't drop interest amounts.

I have no issues putting some of my savings towards a lump sum pay off, but I also don't want to pay more interest charges than i have to, going to the loan with 3.8% AER, vs the 5.0% AER means i instantly pay £800 less in interest over the natural life of the loan. Taking into account regular monthly overpayments i drastically reduce my interest down to around £600 over the life of the loan, saving a pretty considerable amount, just from dropping 1.2%AER and making regular chunky overpayments.

forgotmyname

£800 in interest saved? Are you sure. The difference between 5% and 3.8% is only £300 ish on my calculator.

Add in any startup or admin fees and that could be a neglible saving.

If they have not given you a cast iron guarantee on the 3.8% then you may not get it.

If you dont want to phone them monthly, Save hard for 2 or 3 months and pay a lump sum.