Advice Please

Dabbskebabs

Hi everyone,

Firstly thanks in advance to those who read and provide advice, apologies if I've missed an FAQ thread which answers this question.

I'm looking to take out a loan to purchase a piece of scuba equipment (It's for recreational use - It's just bloody expensive). The cost of the unit plus training, consumables and other bits and bobs will mean I'll need to take a loan out between £5,000 - £7,500.

Unfortunately I'm unable to be more specific as I don't know but what I do know is that is a top and bottom cost, it is likely to be closer to the £5k - But I don't want to risk not taking out enough money and being sat around with a piece of equipment that I can't use until I save up some more money. Likewise, taking out too much increases my monthly payments by £40 (Which adds up and is £40 p/m I could save - Although I wouldn't have a problem making the monthly repayments in either case).

My reasoning for the £7,500 also is that I get a slightly better interest rate (3.1% compared to 3.8% with Zopa currently). According to credit club I have a 994 score with Experian and affordability, and Noddle rates me 3/5 - So I don't believe attaining the loan will be a problem.

So now the background is out the way, my question is what effect is there on the loan repayment period/ monthly amount, and my credit score if when I've paid everything off and cannot foresee future costs relating to this piece of equipment, that I still have say £1,000-£2,000 leftover and want to pay it back early? I believe this is called a partial early settlement? With Zopa at a brief glance they say there is no early repayment penalty.

What do you believe to be the best course of action for the above? Or alternatives that I haven't considered?

Any/ and all help is appreciated.

All the best,

Leon

[Deleted User]

You can pay it back early, shortening the term. In most cases, your monthly repayment will stay the same with most lenders.

Your credit score will plummet when you take out the loan and plummet when you pay it back.

Fortunately it is of as much relevance as the colour of unicorn poo, so ignore it.

zippygeorgeandben

I currently have a ZOPA loan, I like how they operate. Mine was 4.8% back in 2014. I rang them this week for an early settlement fee, think there is about £5500 on it and they gave me a figure which was £300 because of the interest I wouldn't have to pay. You could bear that in mind.
Does it have to be Zopa? Sainsbury's have a very competitive loan at the moment at 2.9%. If you are a nectar card holder the rate is 2.8%. Of course this is a representative rate and you might not get the advertised rate.
A loan of £7,500 paid back over three years is a total repayable of £7,823 with a monthly repayment of £217.31
What can Zopa offer you compared to this?
Ben

Dabbskebabs

@Zx81 - Haha cheers!

@Zippy - I can only get the nectar card deal on a 3 year loan and whilst probably manageable my gut feeling is that I'd feel uncomfortable with the higher monthly repayments (£217 vs £135), hence why I am looking at 4-5 year loans.

According the the legibility calculator Zopa were 70% likely to give me the loan whilst Sainsburys was slightly less at 60%, however they do offer a 2.9% APR. The interest difference is £40 over 5 years so I thought likelihood of acceptance topped a tiny saving. Sainsbury's whilst they allow overpayments, says there may be penalty charge for paying off early. What do you think?

This is will be my first loan so appreciate all the help and comments!

Shakin_Steve

So you don't actually want to settle the loan early, you want to make a partial repayment early on in the loan period? i.e. You want to borrow £7500, use, say, £6000 and then pay them back £1500 immediately.

Dabbskebabs

@Shakin Steve - Yeah, I just wondered what ramifications there are when doing something like that?

Shakin_Steve

Dabbskebabs wrote: »

@Shakin Steve - Yeah, I just wondered what ramifications there are when doing something like that?

I'm not totally sure, you'd have to ask the lender. Wouldn't you be better sitting down and working out exactly what you think you are going to need? Then put, say, a £2-300 contingency on top and just borrowing what you need.

[Deleted User]

Just to add your credit score means nothing, lenders do not even see it.

Nebulous2

Going above a specific point which triggers a lower interest rate (assuming you get the lowest rate) makes sense as long as you don't then blow the extra.

You are then looking at the lenders terms and conditions to see how they deal with overpayments and whether there is a charge for making one. I've posted before that Santander lets you choose to either reduce the term or reduce the monthly payments. That is clearly laid out in their information and other lenders are likely to have the same.

Dabbskebabs

Nebulous2 wrote: »

Going above a specific point which triggers a lower interest rate (assuming you get the lowest rate) makes sense as long as you don't then blow the extra.

You are then looking at the lenders terms and conditions to see how they deal with overpayments and whether there is a charge for making one. I've posted before that Santander lets you choose to either reduce the term or reduce the monthly payments. That is clearly laid out in their information and other lenders are likely to have the same.

That's was my initial thinking. Okay, brilliant I will check their T&Cs then. Thank you very much!

AnotherJoe

Nothing to say on loans, just enjoy your rebreather