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Pay off loan or keep it open?
Hopefully a very easy one for you all!
I took a loan out for £7500, on a low interest. I no longer need the money and it is sitting in my account.
In terms of what lenders see and my ability to apppy for future credit, would it be beneficial to clear the debt, in terms of the interest saved, or pay it off gradually through the funds in my account?
I assumed any clearance of debts would be a positive thing but reading up on it, I'm not so sure! Apparently lenders prefer to see regular payers, rather than those who open up credit accounts and close them quickly...
My credit rating (as much as that's worth) is fantastic and other than this loan, I have a credit card which is interest free and paid each month. No other debt issues :beer:
Hoping to apply for a mortgage next year, so I want to make sure everything is tip top!
I took a loan out for £7500, on a low interest. I no longer need the money and it is sitting in my account.
In terms of what lenders see and my ability to apppy for future credit, would it be beneficial to clear the debt, in terms of the interest saved, or pay it off gradually through the funds in my account?
I assumed any clearance of debts would be a positive thing but reading up on it, I'm not so sure! Apparently lenders prefer to see regular payers, rather than those who open up credit accounts and close them quickly...
My credit rating (as much as that's worth) is fantastic and other than this loan, I have a credit card which is interest free and paid each month. No other debt issues :beer:
Hoping to apply for a mortgage next year, so I want to make sure everything is tip top!
0
Comments
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Pay it off.
If you want a credit history without paying interest, use the credit card, put spending on it every month, and pay it off in full every month also.
Same impact, no interest paid.
Never pay interest to boost a mythical credit score. For mortgages, a balance on a loan is a negative, not a positive anyway.
In debt and looking for help? Look here for the MSE Debt Help Guide.
Also, If you need any free and impartial debt advice, the National Debtline, Stepchange, and the CAB can help.0 -
Pay it off.
If you want a credit history without paying interest, use the credit card, put spending on it every month, and pay it off in full every month also.
Same impact, no interest paid.
Never pay interest to boost a mythical credit score. For mortgages, a balance on a loan is a negative, not a positive anyway.
My thoughts exactly - I just wasn't sure after reading into it a bit further. Thank you very much for your reply
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How long is it since you took out the loan?
The problem you may find is that they ask for the interest (or most of it) that you would have paid had the loan run to full term0 -
They will only ask for a maximum of 58 days interest on the remaining balance.0
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There is no point in borrowing and paying interest if you don't need to and it certainly won't help your credit rating. Is there an early repayment penalty?I’m a Forum Ambassador and I support the Forum Team on the Debt free Wannabe, Budgeting and Banking and Savings and Investment boards. If you need any help on these boards, do let me know. Please note that Ambassadors are not moderators. Any posts you spot in breach of the Forum Rules should be reported via the report button, or by emailing forumteam@moneysavingexpert.com. All views are my own and not the official line of MoneySavingExpert.
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Deleted_User wrote: »They will only ask for a maximum of 58 days interest on the remaining balance.
Interesting, and clearly something that they were able to find ways around, or at least from my experience - especially once repayments had started. I am working from loan agreements I had in 2006 and 2008. I guess it depends how the interest is added0 -
Your loans may have pre-dated current legislation, where front loaded interest was allowed.
No loans work in that manner now.0
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