Consolidate or not??

winnie

Hi Folks,

I am pondering over what to do with 2 loans whihc i have and whether its worthwhile taking out a loan to cover both now, in a few months or just stick with it the way it is.

I have a loan with nationwide (6.7%) for £10,000 over 5 years (i have made 3 payments) - i took this out to pay off my credit card which had got out of control. I have also just taken out a loan (last week) from Natwest (9%) for £6,500 over 3 years to pay for a car. I would have got a better rate but needed the money within 2 days and quickest way i could get it.

Anyway bottom line is im paying back £410 a month.

I had a look today on moneysupermarket.com and it said i could pay back around £385 a month for 4 years (thats £16,500 over 4 years).

Even though this is a saving im not sure when taking the early payment costs if its worth me changing either now or later or not at all. Nationwide uses rule of 78 and natwest just ask for 2 months interest.

All advice would be very welcome.

Thanks in advance

Winnie x

mountainofdebt

How much are you paying for your Nationwide loan per month?

winnie

Im paying back £205 on both loans.

mountainofdebt

Right the rebate formula for your Nationwide loan can be calculated as follows:

total amount of interest due x (length of loan left) x (length of loan left + 1) divided by ((total number of payments) x (total number of payments + 1))

So in your case the total interest due is £2300 so the calculation is
2300 x (57x58)/(60x61)

Which I think equals to approx £2077...so I guess that to clear your loan you would need to pay back to Nationwide approx £9608.

So with your natwest loan you would to borrow about £16,100, although I admit I haven't taken into account the natwest penalties.

So on the face of it yes you would be better for you to change (although I would appreciate it if someone could check my maths!) - only would you get a loan for £16500 if you already have £16500 of debt already?

winnie

Thanks for working that out for me, even if it is just a rough idea! From what i could work out id be better off.

Also you're absolutely right i dont know if i would be able to get another loan out for circa £16K. I thought maybe if i phoned up and explained the situation they might let it go through, but it is a lot of money to ask for in efefct twice!

More thoughts would be appreciated!

Xbigman

Do you have PPI on either of your current loans? And will you be pushed into PPI on the new consolidation loan? That could make a big difference.
In your current circumstances (2 loans already) you might not get the best interest rate going offered to you. Look at this more closely.

Another issue. Can you afford the payments? If you can pay extra off one of your current loans so you repay it early then thats the real way to save money. Check which loan has the lowest penalties for making extra payments. If that is equal then go with the highest APR.
Regards



X

winnie

Ive not got PPI on either loan - i think you've probably hit the nail on the head, save up alongside paying them off and payback early.

MarkyMarkD

There's no point comparing the monthly payments. What matters is whether you can borrow the new money at less (APR) than the old.

Your Nationwide loan is already at a competitive rate. The other loan is not.

You almost definitely won't get a better overall deal than keeping the Nationwide deal and refinancing the Natwest one - and it may not be worth refinancing that because of the 2 month interest penalty.

So, if I'd taken out the Natwest loan at a poor rate (which I wouldn't have) I would aim to pay that one off ASAP, leaving the better value Nationwide one outstanding for its duration unless you can also afford to pay that off early at a later stage.

youngandreckless

Hi Winnie,

Did you look at Cahoot? My loan is with them and the APR is 6.7%, they were also ok with the fact I was consolidating an existing debt, might be worth a look if you haven't already. I'm sure you can get a better deal than what you currently have somewhere - maybe a flexible loan that you can make overpayments on would help?