Taking out a loan to pay finance? Good for mortgage?

J_John96

Basically,

Have £10,000 out on a car. The settlement fee is £7,000. I am currently paying £210 for that and a further £90 for a phone bill. If I get out a Tesco loan for £8000 and pay these 2 finance agreements off I’d be paying back £140ish for 5 years. Saving me about £160 per month.

I’m a bit scared incase taking out such a big loan of £8000 will affect me getting a mortgage? Any tips or ideas?

Nebulous2

When does the car loan finish? What are the current and new loan interest rates?

The problem with what you are suggesting is that you are likely to be stretching the repayments out over a much longer period, paying more interest overall. It generally isn't a good idea to pay for consumer items over a longer period than they will remain in use. Do you think your phone will last another 5 years? If not you may have to pay a new one as well as the finance for this one.

When do you want a mortgage? The loan will be taken into consideration when the lender calculates affordability, reducing the amount you can borrow. That may not be an issue if you aren't pushing your limits for purchasing a house. If you are at the top of your limit then paying the car off might be best, rather than extending the payment period.

J_John96

If I keep the car finance it won’t be paid until 2024 and I will be paying an extra £3000ish. Whereas the loan is less interest (£603 added approx.) saving me about £2300 and also bringing my monthly repayments down by £150-£160ish per month. Mortgage application will be within the next 6-12 months. As for the phone, it’s brand new so should last me a few years

[Deleted User]

Why not put applying for a mortgage off for a year and putting what you'd save for a deposit into paying off the finance? That's if it will cause affordability problems when you apply for a mortgage. If it won't, you have plenty of earning per month to stand any interest stress test the lender will apply, its not worth it. But as you chose finance to pay for the car rather than money in the bank, I suspect this probably isn't the case.

Taking on further debt (longer loan, more interest payments) isn't good thinking financially. Life being what it is, you are allowing longer for something to go wrong. Phones might last longer than 2 years but rarely 5 years, purely because of technology advances. You KNOW you will be buying another phone before the 5 years is up. And probably the same with the car. Major repairs needed, it can become financially unsound to keep a car when its reached an age/mileage when things start going. Been there with an ex, several times lol. Cheaper to buy a newer car than keep repairing.

Nebulous2

What are the interest rates? You might not get the headline rate from Tesco. What you are saying could work. I'd certainly want to reduce the interest paid if I had a high apr loan. However if you're saving over £2000 in interest why don't you use that to reduce the time you are in debt, rather than the monthly payment? How does a 3 year loan look?

getmore4less

Without the amounts, interest rates, terms it is not easy to see what the real saving are.

If I get out a Tesco loan for £8000 and pay these 2 finance agreements off I’d be paying back £140ish for 5 years.

£140*5*12= £8400 APR around 1.94% do tesco have loans that low?

Whereas the loan is less interest (£603 added approx.)

if it has that much interest added £140pm for 5 years won't be enough you need
it will be more like a 2.9% loan at £143.40pm

are you sure you can get that low rate, they say that's the best they do.

Details for the 2 current debts?

AdrianC

J_John96 wrote: »

Have £10,000 out on a car. The settlement fee is £7,000. I am currently paying £210 for that and a further £90 for a phone bill. If I get out a Tesco loan for £8000 and pay these 2 finance agreements off I’d be paying back £140ish for 5 years. Saving me about £160 per month.

I’m a bit scared incase taking out such a big loan of £8000 will affect me getting a mortgage? Any tips or ideas?

You owe £7k against the car now.
After doing this, you'll owe £8k.

£8k is more than £7k. You will owe more.

The monthly repayments might be less, but you'll be paying over a longer term - so you'll be paying more.

If you're paying £90/mo towards a phone bill, are we talking about your ongoing contract, or are we talking about a debt? If a debt, how much is it in total, and what recovery steps have been taken...?

J_John96

I owe £10k for the car including interest. Only the settlement fee is £7000. The phone is £800 and that’s just for the device to be paid off. I don’t have interest rates on me atm but It just works out cheaper for me monthly to get a loan out and pay them all off and then repay the loan. I checked for loans and apparently Clydesdale bank and they are willing to lend me £7800 with an interest of £603 making the total repayable £8403. So to me this works out cheaper as the car has £10k against it due to the interest being higher

AdrianC

J_John96 wrote: »

I owe £10k for the car including interest. Only the settlement fee is £7000.

Right.
You owe £7k. You could pay £7k tomorrow and you'd be free of the finance.

You borrowed £10k, but you've paid £3k of it back.

I don’t have interest rates on me atm but It just works out cheaper for me monthly to

WOAH!

"Monthly" is a total misnomer. It disguises how much you're repaying. You NEED to know duration and interest.

I lend you £1k, and give you a choice.
You pay me £101/month.
You pay me £52/month.

Which is cheaper?

BTW, the first is for 10 months, the second is for 20 months. The first costs you £10 in interest, the second costs you £40. NOW which is cheaper?

getmore4less

How long has that £10k(including interest) loan been going?

£10k £210pm looks around 48 months
What was the amount borrowed start date & end date.

£7k borrowed over 4 years with a £210 payment is a rate of around 19%

GDB2222

Did I read that correctly? The OP wants to buy a house, so his preparation for that is to buy a phone costing £90 a month?