A tricky decision, or is it?

WitneySi

Hi.

So I have a loan with No1 Copperpot with £15,152 outstanding over 59 months left to pay - never ending. The interest is set at 6.9% and is repaid at £302 PCM.

I'm now looking to pay off that loan using another company (Tesco @ 3% is tempting) with the same monthly payment costs plus additional payments of £400 PCM (so about £700 PCM).

I have 2 questions with regards to this -

1. Is it worth taking the loan out over the maximum amount of time so I'm paying less interest back (as technically I'll be paying it back in full very early).
2. My wife and I are looking to purchase our first property early next year which'll involve applying for a mortgage - will this new application/loan put me on the back foot?

I guess what I'm looking to do is reduce the overall term of this loan from 59 months to under 24 which will be possible with the added payments, question is, is this better for me in the long run or do I just stick with Copperpot?

Thanks in advance,

Simon

Pixie5740

WitneySi wrote: »

Hi.

So I have a loan with No1 Copperpot with £15,152 outstanding over 59 months left to pay - never ending. The interest is set at 6.9% and is repaid at £302 PCM.

I'm now looking to pay off that loan using another company (Tesco @ 3% is tempting) with the same monthly payment costs plus additional payments of £400 PCM (so about £700 PCM).

I have 2 questions with regards to this -

1. Is it worth taking the loan out over the maximum amount of time so I'm paying less interest back (as technically I'll be paying it back in full very early).
2. My wife and I are looking to purchase our first property early next year which'll involve applying for a mortgage - will this new application/loan put me on the back foot?

I guess what I'm looking to do is reduce the overall term of this loan from 59 months to under 24 which will be possible with the added payments, question is, is this better for me in the long run or do I just stick with Copperpot?

Thanks in advance,

Simon

Assuming you are one of the 51% of successful applicants offered Tesco's representative APR you are looking at a saving of less than £650 and paying the loan back a month earlier than if you just upped your payments to £700 on the loan you have now.

andy1988

I can offer a quick bit of advice regarding the mortgage situation.

I recently had an absolute nightmare trying to obtain a mortgage due to a loan that I had outstanding. Without giving exact numbers away I haven't been able to achieve the mortgage amount I desired.

The mortgage lender is only prepared to offer me a mortgage where the monthly payments amount to 23% of my net take home monthly pay. The only debt I have is the loan and the monthly payment for it is 20% of my monthly take home salary. Basically the mortgage and loan combined make up 43% of net take home pay. I have very few other commitments, far fewer than the average person so I'm left with a high disposable income yet no further lending is permitted.

If my LTV was higher than 80% they would lend me less.

If you've got debt and you're looking to reorganise it I would personally go for the lowest possible monthly payment (7 year term?). Lenders will look at your total debt too, but you're not asking to increase this so at least your monthly affordability would improve with a lower loan payment. You're also locking in a low interest rate at a time when the rates are likely to rise. Regardless of whether you get the representative APR or not today, you'll likely be in the same, or worse, position of getting/not getting the "representative APR" for the foreseeable future, especially with a new mortgage on your profile.

I don't mean to give direct financial advice, take everyone's feedback into account. Mortgage companies assess people differently but if you're aiming for a high income multiple mortgage the loan needs to be very carefully considered. Perhaps speak to a mortgage broker before doing anything with your loan.

Andy


EDIT: you can potentially make overpayments to the new loan to reduce the term depending on Tesco's T&Cs. That shouldn't be seen as a commitment by the mortgage lenders but serves the same purpose for your end goal of reducing the loan term.

ReadingTim

If you get the advertised rate and if the savings outweigh any early repayment charges then mathematically, it makes sense.

The real question is whether you have the self-discipline to use the new loan to repay the old - many don't, which is why the debtfree wannabe board tends not to recommend "consolidation loans" (which is sort of what this is). Only you know the answer to this.

Dunno which of the 2 loan options would look better in terms of a mortgage application - you could always post the question on the mortgages board and see what the response is there.

foxy-stoat

You wont get the headline rate for debt consolidation - just overpay the original loan.

WitneySi

Thank you all for your responses. I have taken the decision to keep the current loan but overpay each month by £400. This should reduce my term from 59 to 18 months which is amazing. Also, given I've had this loan for a few years already will show no missed payments and that I can keep to my commitments.


thanks again all.