Upcoming problem with Loan payments - Read post for full Story

r7rok

Hey all. First post on to the site. Just looking to post my story and ask some advice. If your nice I might stick around and get involved in the community

Anyways the story goes a little something like this.

Back in 2012 I was still back at home living with my parents . Was working in a good well paid job, no girlfriend, and no commitments. At that time my dad was looking at buying a new car but was struggling to get credit due to past problems. Being the helpful son I am, I offered to take the loan in his name as what I was giving him each month for digs was the same as what the loan would be, and instead of me paying him digs I could pay his car for him, and if I was to get my own pad, he would then need to pay it. We both agreed that would work for us and this went ahead as planned.

Since then things have moved on for me, I have found a girlfriend, rent my own place (that's a story for another day) and she has a son from a previous relationship who lives with us too. My Dad was paying me the cash as agreed to cover the loan and everything was coming on great.

Then I made a genuine mistake which altered the course of things dramatically. Now I would consider myself financially switched on and have complete control of my finances but I made a snap decision in error. In January of 2014 I finally passed my driving test and with savings I had, I bought myself my first little car. On moving in with my partner, we both agreed that my little puddlejumper would not suit for a family car and we would need something a bit better and bigger.

Due to the move in to the property and furnishing it my savings were down pretty low and didn't have the cash to buy a car, so decided to get a fairly good, second hand car from the garage. When crunching the numbers I looked at extending the amount of my existing loan as this would work better than having two separate loans. In the interest of not leaving myself too short I also stuck the term up slightly to compensate.

A few months down the line it dawned on me I'd made a massive cockup. My father is due to stop paying me in March 2017. I will then at that point have 9 payments to make of what my dad was paying me plus the rest. OOPS!

I have the cash to do so, but that would leave me with no margin for error in terms of disposable income, and savings would likely need to stop too.


Now since 2014 and now, loan rates have tumbled quite a bit and I could look at doing a rejig of the existing loan with another provider and bringing my rate down a bit which would help me. But this is where the advice comes in.

Option 1 would be to take the loan at existing term, save myself a small amount each month, commit the free income generated to savings, and by march 2017 pay what's saved from balance and leave a small loan at the end to pay each month.

Option 2 would be to term a new loan right up the way to max. Make a big saving each month. Commit the free income to savings again. Pay the finance off either early and bank the cash from my dad. Or wait until the end of his term and pay off with savings remaining.


Option 2 obviously makes sense from a practical standpoint and would be the winner in most cases but I don't like the idea of long term debt, especially with the previous situation getting me in the pickle I am in, in the first place. Thoughts and comments would be much appreciated.

Regards
Rob

vlad

Welcome to MSE, would it not make sense to wait until your current car loans are paid off before considering another? Surely even a small car would surface for you 2 and the rugrat?
ps love the term "puddle jumper"

r7rok

Think I have got lost in translation. I did buy our own car in 2014 and at that time refinanced existing loan with 9 months added term. No plans to change car but come march next year I'l stop getting cash from my dad and have to pay for both because I made the mistake of extending the term. So options stated would be to get in best place for when this happens

vlad

OK sorry i understand now, could you save some money over the next 9 months?

r7rok

Not yeah I can save more but not enough to clear the balance by march.

Refinance elsewhere and could do this for fun.

andyfromotley

I would be tempted to scrimp and belt tighten for the 9 months to get this paid off. If you extend it will just be hanging around your neck for longer, plus those intended savings have a way of finding their way to other spending so end up not being saved or used to pay off the original debt.

Kitten868

I would consider getting a new loan at a lower Apr if it'd save you money for sure.
What about just borrowing the amount you are borrowing now but again longer term as possible and over paying it for now? So you have low monthly costs but can decrease the term by overpaying while you're dads still paying.
Any good to you?

r7rok

Hey Kitten.

That is my line of thinking too. If I take the debt at my current apr to a new 3.3% and take the term from 2 years to 5 years I can make the payments from 400 per month to 165 per month and then I would plan to overpay back up to the 400. Would need to check terms of new loan though as don't know if theres an interest charge each time your overpay. Might be better to save the 235 on top my existing savings, and then just lump the lot into it to clear the balance come march.

Thoughts?

Pixie5740

Option 2 does not make financial sense at all. You're planning to start saving money whilst paying interest on a loan where the loan interest is most likely going to be higher than the interest earned on your savings. You won't be making a saving each month either, yes your repayments will go down but over all you'll repay a lot more interest.

dancingfairy

Get a spreadsheet and work out end dates for different options, monthly cost and total overall cost. Normally extending the term, while it might mean cheaper monthly payments it generally a) drags on longer and b) ends up costing you more in the long run.
It seems to me that you want to minimise the amount you borrow ( borrowing more to put money in savings makes no sense to me) and also try and minimise the term whilst keeping the payments affordable.
If you can get a cheaper Apr I'd look at borrowing the minimum you can to settle ( you'd need to get a settlement figure) over the shortest timeframe you can.
You may find the lower Apr means by refinancing you can still pay it off in the original timeframe but pay less per month. You'd need to play with various online calculators but make sure you consider total cost not just monthly cost.
Df

Playing_with_Fire_2

Can you apply for a 0% credit card, put your normal spending on that and put the difference in a savings account. When you need to pay the extra 9 months use the cash from the savings accounts and then after the loan finishes put everything towards clearing the CC?