Pay off loan?

rubuhoeikanaika

Hi all,

In an effort to improve my partner's credit rating (she is new to the UK), we have jointly taken out a personal loan with our bank to buy a car. We could afford to buy the car in cash with our emergency fund, and the interest rate isn't the lowest (17% over 5 years for an unsecured loan).

Question is -- would paying off the loan quickly make it less likely to improve her credit rating? We could fairly easily afford to overpay so that it's cleared this year.

I know credit ratings agencies care both about the amount borrowed and paid back, and the length of time the account has been open. But does the latter make a huge difference for personal loans?

Thanks!

HappyMJ

rubuhoeikanaika wrote: »

Hi all,

In an effort to improve my partner's credit rating (she is new to the UK), we have jointly taken out a personal loan with our bank to buy a car. We could afford to buy the car in cash with our emergency fund, and the interest rate isn't the lowest (17% over 5 years for an unsecured loan).

Question is -- would paying off the loan quickly make it less likely to improve her credit rating? We could fairly easily afford to overpay so that it's cleared this year.

I know credit ratings agencies care both about the amount borrowed and paid back, and the length of time the account has been open. But does the latter make a huge difference for personal loans?

Thanks!

You have the money...use it. 17% is a horrendous rate you can get unsecured loan at 3.5% APR. Why didn't you at least take the loan over 12 months rather than 5 years?

To improve your credit all you need is a credit card from the likes of Vanquis with a 49.9% APR ...use it and pay it off in full each month. Interest will not be payable. It's free.

Paying off a loan quicker actually lowers your credit rating rather than improving it and having outstanding debt will also lower it too. So bad all round. I'd pay it off in full now and wait for 6 months so the effect isn't as bad on your credit history before applying for further credit. It will cost you more as you will have a penalty to pay for paying it off early but it shouldn't be too much. Banks and loan providers want you to run the full course of the loan so they can make the most out of you.

20aday

HappyMJ wrote: »

You have the money...use it. 17% is a horrendous rate you can get unsecured loan at 3.5% APR. Why didn't you at least take the loan over 12 months rather than 5 years?

To improve your credit all you need is a credit card from the likes of Vanquis with a 49.9% APR ...use it and pay it off in full each month. Interest will not be payable. It's free.

Paying off a loan quicker actually lowers your credit rating rather than improving it and having outstanding debt will also lower it too. So bad all round. I'd pay it off in full now and wait for 6 months so the effect isn't as bad on your credit history before applying for further credit. It will cost you more as you will have a penalty to pay for paying it off early but it shouldn't be too much. Banks and loan providers want you to run the full course of the loan so they can make the most out of you.

Mind me asking why paying off a loan quicker has more of a negative impact on your credit history than completing the full term?

I just wonder as I'm making overpayments on a loan I have. Thought I was doing the right thing!

rubuhoeikanaika

HappyMJ wrote: »

You have the money...use it. 17% is a horrendous rate you can get unsecured loan at 3.5% APR. Why didn't you at least take the loan over 12 months rather than 5 years?

Flexibility -- we can always overpay for a fairly minimal interest penalty, and the amounts involved are small enough (about £6k) that the difference isn't huge (to us).

To improve your credit all you need is a credit card from the likes of Vanquis with a 49.9% APR ...use it and pay it off in full each month. Interest will not be payable. It's free.

Please look up the definition of mansplaining. In fact, my wife does have one of those cards - 60% APR, £100 credit limit. Since we are going to apply for a mortgage in a couple of years, we were advised that it wouldn't provide enough of a credit rating boost.

Paying off a loan quicker actually lowers your credit rating rather than improving it and having outstanding debt will also lower it too.
So bad all round. I'd pay it off in full now and wait for 6 months so the effect isn't as bad on your credit history before applying for further credit. It will cost you more as you will have a penalty to pay for paying it off early but it shouldn't be too much. Banks and loan providers want you to run the full course of the loan so they can make the most out of you.

This is more mansplaining, I'm afraid. We only need to worry about her credit rating about 2 years down the line when we apply for a mortgage, and in my judgement the boost from having a credit history will outweigh having a reasonably small loan on her file in two years.

The only thing you say that sort of answers my question is "Paying off a loan quicker actually lowers your credit rating rather than improving it" -- can you link me to some reading material about this, please?

FWIW, our mortgage broker told us that my credit history is fine for a mortgage, but hers is a concern. She simply has a blank UK credit slate. At the moment, a good credit rating in a couple of years is worth more to us than a couple of hundred or thousand pounds that she will pay in extra interest to get there.

pd52

I've been over paying my lloyds loan every month for 12 months . I've reduced it from 60 to 13 months ,hope this hasn't ruined my credit rating