Saving for a Deposit - Accept Settlement offer for Unenforceable Defaulted loan? Pay it all off?

JamesC3

Hi,
I have received a letter from Link Financial today advising that they would accept a £2,032 payment towards a £2,903 balance. A 30% discount.

This has a default date of February 2016. I argued it, as all of our other defaults – that went on to a DMP – had default dates of late 2014/early 2015. Anyway, they have said they won’t be changing that.

We are currently trying our hardest to save a deposit for a house. This is the only default left and the only debt left. I’m hoping that via the help to Buy scheme we will be in a position to have a deposit by August.

My question is, this debt will be on my wife’s credit report for 13 more months. If I pay the £2,032 offer, how much better will it look when trying to find a mortgage? I understand paying off the £2,903 would be even better, but I’m just wondering if I should just pay off the £2,032 balance?

Any thoughts appreciated.

James

Thrugelmir

Until the debt is settled it will remain a blight on your wife's credit report. From a potential lenders perspective it's a red flag. 

janoid19

I would definitely pay it off but now that there is already a default on the account, I don't think it matters if you pay it off in full or pay off the discounted offer as long as its settled.

JamesC3

Thanks both. So even paying off the £2k and getting a 'part-settled' on the credit file could help? 
Nice to know.

Thrugelmir

Ultimately your credit files are a reflection of your attitude to personal money management. Financial transactions rely on a high degree of trust. Lenders will be looking for any reason why you might not be trustworthy. There's plenty of customers out there for them to choose from. As a consequence they'll happily pass on your application. 

K_S

JamesC3 said:

My question is, this debt will be on my wife’s credit report for 13 more months. If I pay the £2,032 offer, how much better will it look when trying to find a mortgage? I understand paying off the £2,903 would be even better, but I’m just wondering if I should just pay off the £2,032 balance?

@JamesC3 From a mortgage point of view, your chances of getting a mortgage will not wildly differ based on whether you do a full-settlement or partial-settlement at this stage. It will show on your credit record as "partially settled" but

- many lenders will ignore this partial settlement flag, they'll care more that it's settled.

- as the debt is defaulted, it will drop off your credit record 6 years after the default date. Partial settlement or full settelment makes no difference.

Personally, I don't see any significant advantage to be gained by paying off the full amount as opposed to the lower one.

K_S

Thrugelmir said:

Ultimately your credit files are a reflection of your attitude to personal money management. Financial transactions rely on a high degree of trust. Lenders will be looking for any reason why you might not be trustworthy. There's plenty of customers out there for them to choose from. As a consequence they'll happily pass on your application. 

@thrugelmir Out of interest, who do you mean by "they"? Every single mortgage lender?

With all due respect, I don't think you know enough about the OP's circumstances (from lenders' point of view) to make such a sweeping assertion about their chances of getting a mortgage.

JamesC3

Thanks very much both for your comments.

Thrugelmir

K_S said:

Thrugelmir said:

Ultimately your credit files are a reflection of your attitude to personal money management. Financial transactions rely on a high degree of trust. Lenders will be looking for any reason why you might not be trustworthy. There's plenty of customers out there for them to choose from. As a consequence they'll happily pass on your application. 

@thrugelmir Out of interest, who do you mean by "they"? Every single mortgage lender?

With all due respect, I don't think you know enough about the OP's circumstances (from lenders' point of view) to make such a sweeping assertion about their chances of getting a mortgage.

I'd assume that the OP wishes to obtain a competitive rate from a mainstream lender. Rather than a more pricier rate from an alternative source. 

People are surprisingly predictable and can be grouped into a type of borrower. I purely base my observations on having worked within finance for all my working life. Granting credit of any kind isn't a game. It's taken extremely seriously. Bending the rules tells you a lot about someones character. 

K_S

Thrugelmir said:

K_S said:

Thrugelmir said:

Ultimately your credit files are a reflection of your attitude to personal money management. Financial transactions rely on a high degree of trust. Lenders will be looking for any reason why you might not be trustworthy. There's plenty of customers out there for them to choose from. As a consequence they'll happily pass on your application. 

@thrugelmir Out of interest, who do you mean by "they"? Every single mortgage lender?

With all due respect, I don't think you know enough about the OP's circumstances (from lenders' point of view) to make such a sweeping assertion about their chances of getting a mortgage.

I'd assume that the OP wishes to obtain a competitive rate from a mainstream lender. Rather than a more pricier rate from an alternative source. 

@thrugelmir With all due respect, there's nothing in the OP's post to indicate that he expects to get Nationwide rates. The UK has one of the most diverse residential lending environments in the world, with a huge range of scenarios catered for. The lending world doesn't revolve around solely mainstream lenders.

From my experience actually placing customers with lenders, lenders are far less judgemental that you appear to be