Refinance full loan to cover other or partial loan at great rate?

randomandroid

Is it better to refinance an existing loan completel at a slightly better rate, or refinance part of an existing loan at a much better rate?

I have a £25k loan with HSBC at 6.8% over 60 months which is exactly what I needed. I have paid 10 installments without missing any payments (yay) and have a "Fair" credit rating at present (which is down from Good and Very Good according to experian due to a number of insurance credit checks in December and a recent remortgage).

The amount outstanding is about £21.5k now, and I could get a new loan at less.

I can repay a large chunk of the loan without incurring penalties.

There are lots of loans of up to £15k at rates less than 4% at present,whereas loans up to £25k are over 5.5% mostly (most over 6% and I'd expect this).

I'd expect to get a slightly worse rate, but nothing excessive.

Making the payments is not an issue, but I'd like to save money if possible.

Is it better to refinance the whole loan at £21.5k?

OR is it better to refinance £15k at 4% or so, and keep the £6.5k (approx) at 6.8%?

Anyone got any suggestions? Are there any reasons not to do it either way?

Likelihood is will repay it all early (within 3 years) as intending to overpay, but thinking about the possibility of saving money rather than overall cost.

Pixie5740

The term of your existing loan is 60 months and you've already been paying it for 10 months, so are you looking to take these new loans out over 50 months?

If you take out a £15k loan and use it to repay some of your existing loans that won't change the monthly repayment amount to your existing loan. Meaning that you'll have to continue making the same monthly repayments as well as the repayments for the £15k loan. Does your budget allow for that?

Any plan to re-finance your existing loan depends on:

a) You being accepted for a £15k or £21.5k loan.
b) If you are accepted that you'll get the advertised headline rates.

Don't put too much stock into what Experian say about your "credit score" as there's no such thing as a universal credit score and Experian don't lend money.

randomandroid

I'd be amazed if I wasn't accepted for a loan (haven't missed a payment on anything in 5 years) and have enough income to cover payments with ease.

There is only 1 loan at present. Are you saying that paying off a part of the loan doesn't mean they won't change the payments? e.g. if I was paying (say) £100/month and then paid of 60% that the payments wouldn't come down to £40/month? They wouldn't stay at £100/month (as I understand it).

Herzlos

Generally, over payments just reduce the term rather than the repayments.
You could re-negotiate a rate for the remaining £6.5k but it might not be at the existing 6.8%, that'd be up to them. It'd be treated as a new loan though.

randomandroid

Better to just refinance the whole thing then.

Makes sense.