Paying off loan - impact on score??

Winston2019

Hi all, 

I took out a personal loan with TSB after two large (£1600 each) overdrafts always kept me in the red alongside buying too much stuff I don’t need. I’ve learnt from my mistakes but am left with paying a big loan (to me!) which is essentially over £5000 over two years including interest. I was awfully upset at the time and naively didn’t look into it, just saw it as a way of coping with the mess I got into by accepting the loan with high interest. 

The early settlement clause for the loan is 52 days interest to be paid on top of full figure.

I’ve £2700 left of loan to pay (but should I keep going monthly around £55 interest is applied each month that goes down depending on how much of that £2700 is left) and due to complete in April 2022. I would like to pay off the loan as we’re saving for a mortgage and i’m worried about the implications having a loan may have.

 My credit score figure keeps wavering so i’m not paying that much attention to the score yet although its above 850 on Experian. I’m concerned about whether on my credit report it will benefit me to continue to pay on a monthly basis as I am to show i’ve kept up the payments with no issues or whether I pay it all off in one go in a month or two when I have saved enough and pay the early settlement interest on top. I feel disgusted that I ever had to take a loan out so almost feel like it’s deserved punishment to keep paying the monthly payment with interest regardless of how silly it sounds. 

Which would look better when applying for a mortgage? Monthly or one go? I hope this makes sense - sorry it’s waffly! 

[Deleted User]

Your score will drop as it's a change, but that's fine. Lenders will view you as lower risk as your have less debt.

Pay it off as soon as you can and forget about your pretend score.

Winston2019

Deleted_User said:

Your score will drop as it's a change, but that's fine. Lenders will view you as lower risk as your have less debt.

Pay it off as soon as you can and forget about your pretend score.

Thank you for commenting do you have any idea how long it would be better to be left once the loan is paid off to apply for a mortgage? I’m hoping the credit report shows i’ve learnt lessons so to speak, but i’d imagine getting a decline if applying too soon may be worse than waiting! 

[Deleted User]

It depends on the lender and your circumstances. You would lower your risk immediately, but time will improve things further.

Remember that declines don't show on your files, just searches. Use a broker if your circumstances are patchy.

jbrassy

It would definitely be beneficial to pay it off straight away. When you apply for a mortgage, the lender will ask you what other loans you have and what your monthly repayments are on those loans. If you can say you don't have any more loans, this will make you look more favourable in the eyes of the lender. Mortgage lenders take a more holistic view of your finances rather than just making a decision based on your credit file. 

When I applied for a mortgage for the first time a few years ago, I repaid my Career Development Loan off in full before I applied and it did me no harm. I would also suggest perhaps using a broker if you're concerned at all. I didn't have a patchy history when I first applied, but I used a broker and didn't have any issues. When I came to remortgaging 2 years later, I didn't bother using a broker as I had a couple of years worth of repayments in my credit history. 

Fighter1986

Don't worry about that number you see when you log in to your credit report - lenders don't see this number, it's a gimmick.

What matters when you apply for a mortgage is the following:

That you haven't touched your overdraft(s) as of late
That you have a sizeable deposit, 10% minimum, preferably 15%
That you have as little (i.e. zero) debt as possible
You haven't missed any payments or had any adverse data (arrears, defaults, CCJs, insolvencies) recorded against you in the last three years, and that any old adverse records have been long since settled
You have a permanent contract and a guaranteed salary 

Mortgage lenders will offer to lend you around 4.5~4.75x your provable annual income, and they will reduce this multiple based on how much you owe elsewhere. The more you're indebted elsewhere, the lower multiple of your income they'll be willing to lend.

This isn't based on the number you see on Experian it's based on the actual amount you owe.

maxximus75

If you have the money then you would be saving yourself around £1000+ in interest over the two years so, would be advantageous to do so?

Ignore your score(s).  Your credit history will show you have taken a loan and repaid it within the terms of the agreement.