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Pay off loan first before getting another for credit rating?

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Pay off loan first before getting another for credit rating?

7 replies 153 views
L0701738L0701738 Forumite
11 posts
First Post
MoneySaving Newbie
Hi guys,

I currently have two ongoing loans, one has approx £3500 left to pay from £5000 and the other has approx £2800 left to pay out of £5000 again. 

The PCP on my car runs out in June and because it needs repairs/mileage is massively over I plan on taking a loan to cover it then sell it (£6k). I also need to pay £10k in tuition fees for my daughter so I plan on taking out £11k loan, pay off the car, have £5k left over, sell the car (hopefully at £4-5k). 

My question is I plan to pay off one of the loans so I can apply for the other; will this help or hinder me as I’ve heard paying off loans can reduce your credit rating?  My credit score is 476 which seems to be slightly above average for my area. I have a few credit cards on file but I don’t use these often and that’s about it. Should I pay the loan off or keep the money and reduce the next loan size? Repayments are not an issue as this will replace my monthly PCP bill. 

Any help appreciated!

thanks 

Replies

  • edited 27 February at 12:28PM
    zx81zx81 Forumite
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    edited 27 February at 12:28PM
    Your score doesn't matter.  It's not a factor in lending. Generally, any change, good or bad, will reduce it, particularly with Experian, hence no one using it.

    What does matter is affordability.  The more debt you have, the less likely you are to get more.  However, that also depends on your income.   
  • L0701738L0701738 Forumite
    11 posts
    First Post
    MoneySaving Newbie
    Thank you for your response zx81.  I have 100% chance of being approved just now on clear score with 6.9% APR fixed or 95% chance for another with representative 3.2% APR for the loan. 

    Since I plan on paying the other loan off anyway would I be right in saying it shouldn’t matter when I apply since I’m being accepted now and should be accepted later since one loan will be paid off? 

    Apologies, money obviously isn’t my strong point! And thanks again! 
  • edited 27 February at 12:38PM
    zx81zx81 Forumite
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    edited 27 February at 12:38PM
    Your chances look good, but a decline (or acceptance but with a higher rate) is always possible when they do a hard check.

    The lower your debt, the greater your chances.
  • L0701738L0701738 Forumite
    11 posts
    First Post
    MoneySaving Newbie
    Thank you very much
  • DrEskimoDrEskimo Forumite
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    Have you checked what a garage may give you for the car if you were to sell it to them today, in it's current condition and mileage? What about places like WBAC?

    If the trade amount is near enough to what you would want to sell it for privately, you could simply sell the car to the garage/online broker and they will then settle the finance upon purchasing the car. You then just need to apply for one loan for £11k to cover the tuition fees, and will only have the £3,500 and £2,800 loans outstanding.
  • L0701738L0701738 Forumite
    11 posts
    First Post
    MoneySaving Newbie
    Hi Dr Eskimo,

    Thanks for your reply, I put the details into WBAC and the value came out at £6750 but this is without repairs (my bumper needs replaced at approx £800) this isn’t actually as bad as I thought  it would be although a colleague tried to sell his perfect condition car (he has OCD with everything) and they tried to take a large amount off when viewing so he didn’t bother. 

    Has anyone had any good or bad experiences with them?

    thanks again 
  • DrEskimoDrEskimo Forumite
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    L0701738 said:
    Hi Dr Eskimo,

    Thanks for your reply, I put the details into WBAC and the value came out at £6750 but this is without repairs (my bumper needs replaced at approx £800) this isn’t actually as bad as I thought  it would be although a colleague tried to sell his perfect condition car (he has OCD with everything) and they tried to take a large amount off when viewing so he didn’t bother. 

    Has anyone had any good or bad experiences with them?

    thanks again 
    I've heard good and bad, but it's a good starting point. What is your settlement figure for the PCP today? You should be able to ring the finance company up and get a quote (usually it's an automated system).

    Probably worth heading down there and then getting a formalised final offer, even with the bumper damage. Sometimes the charges can be less than you would pay to get it repaired. I would also ring some garages up nearby and ask them if they want to buy it from you. It may be something easy for a dealer to sell, and they may offer slightly higher.
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