Do mortgage lenders prefer loan debt to credit card debt?

MagicMoneyTree81

I’ve got about 7K of credit card debt across two cards, but it’s on interest-free deals, mostly taken out to pay for a car – so actually all built up for sensible reasons. My accounts are a bit erratic – in and out of my overdraft, some months I save, some I don’t – but I’m on the right trajectory to pay it off before the interest-free period ends.

But a mortgage broker advised that I could get a bigger mortgage if my debt were in the form of loan – probably easier for lenders to see my repayment commitments and less of a red flag than credit cards, I assume.

Therefore I’m contemplating taking out a loan to pay off the cards. Thereafter I intend to apply for a mortgage after four months of flawless management of my accounts.

But if I apply for a loan that’s the second credit I’ve taken out this year (took out a credit card in February), which might look bad too? Plus the loan provider will assume that I’m just adding to existing debt, not reconstituting it in a different form, so there’s a risk of being declined.
Does that sound a sensible approach? My credit rating is close to top notch by the way.

Thanks in advance to anyone taking the time to help!

[Deleted User]

You don't want to swap 0% debt for interest bearing debt.

Leave it. And disregard your credit rating.

csgohan4

loan, credit card debt is still debt and will impact on your affordability and how much you can borrow

ACG

It would go off affordability.
If you are replacing your credit cards for a loan, the lender will use the monthyl repayment of the loan rather than around 3% of the balance for the repayments on credit cards.

The loan repayments could be less meaning it has a lesser impact on affordability.

In terms of which is looked on more favourably, aside from affordability I do not think there is a preference from the lenders side.

junglist_matty

MagicMoneyTree81 wrote: »

I’ve got about 7K of credit card debt across two cards, but it’s on interest-free deals, mostly taken out to pay for a car – so actually all built up for sensible reasons. My accounts are a bit erratic – in and out of my overdraft, some months I save, some I don’t – but I’m on the right trajectory to pay it off before the interest-free period ends.

Another idea.... You could sell your car and buy a temporary cheap runabout car for a few months and then have zero debt which would satisfy any mortgage company. Then you can get a mortgage (without worry), move house and buy another fancy car with an interest free purchases credit card.

MagicMoneyTree81

junglist_matty wrote: »

Another idea.... You could sell your car and buy a temporary cheap runabout car for a few months and then have zero debt which would satisfy any mortgage company. Then you can get a mortgage (without worry), move house and buy another fancy car with an interest free purchases credit card.

That's a really interesting idea actually! Thanks. And good taste in music BTW! :T

MagicMoneyTree81

ACG wrote: »

It would go off affordability.
If you are replacing your credit cards for a loan, the lender will use the monthyl repayment of the loan rather than around 3% of the balance for the repayments on credit cards.

That's what I suspected but good to get a second opinion confirming my suspicions. I didn't know the 3% thing so that's really helpful. Thank you!

kingstreet

Be careful.

Many lenders use 5% of the balance, not 3%.

If you enter the monthly loan repayment or card balance in the lender online affordability calculator, you will be able to gauge the impact.