Lots of little loans or one big loan??

Em_19324

Hi everyone! It is my first time posting on here so please bear with me. 

Myself and my partner are currently renting a property and as I am a first year student, we can’t afford a mortgage on his salary alone. We’re spending so much on rent and the area we live in isn’t the cheapest so we have decided to go for a shared ownership property on a development that launches later this year and then remortgage when I qualify and start work. 

As my partner isn’t from the UK and we only moved back 2.5 years ago, his credit rating isn’t the best, it’s probably ‘good’. Mine was poor and I’ve worked it up over the past year so it’s now also in the ‘good’ band. Between us we have a few credit/store cards, a personal loan and a PCP on a car. 

We have a good rate on our personal loan, but everything else is really high interest. As we also need to buy another used car, I thought about getting one big loan to pay off all the credit/store cards and to use this to purchase another used car. So, my question is, what is going to look better/worse on a mortgage application? We can’t really put it off as we need the 2nd car for work/uni purposes. 

Realistically the scenarios are - 

1 joint personal loan of about 3.5k, a PCP in my name, about £2.5k on store/credit cards in my name - then we’d have the 2nd car in my partners name.

or 
we’d keep the personal loan of 3.5k and then jointly take out another loan of about 8k (or top up the first loan), pay off the new car, pay off all the old debts and be left with - 1 (or 2) joint loans, and just one PCP. 

Sorry it’s so long winded I just wanted to give a good picture so I can get the best advice. If we could we’d wait til after the mortgage application but we don’t know when it will be and we really need this second car. 

Thank you!! 

[Deleted User]

Head to the DFW boards for advice on tackling the debt in a more holistic way. Although a CRA may rate you as good, lenders probably won't.

Further borrowing will be a challenge in the current climate, given your circumstances.

easterbunni

Depends: whilst the usual answer would be to buy a cheaper car.... and also what about your deposit? How much is that?

Your lender may not be happy lending you a big loan even if it is to pay off existing debt.

Loans above 7.5K tend to be cheaper

What are the rates on your existing debt?

K_S

@Em_19324 Generally speaking, whether you have 10k of debt across 4 credit cards and 1 loan or 10k on a single loan, it should not make material difference to your chances of a mortgage. How much of an impact the debt has also depends on how large it is in proportion to your income.

With regard to lender affordability calculations, outstanding credit card balances are usually factored in as a 3% / month outgoing and personal loans based on the actual monthly payment. So if you are looking to absolutely maximise borrowing, that may come into the picture.

Em_19324

@easterbunni I understand. We did do that an bought a second hand cheap car but it’s falling to pieces and we ended up spending a fortune on it the past year just to keep it running 🙃 and as we both travel an hour ish to work and then back again we really do need two cars. We’re not looking at a super expensive one, thinking around 3k so it will be half decent. Do you mean a deposit for the house? If so we have about 9k saved up for the deposit so far, hoping to up it abit but it’s over 10% (we are only looking to buy a 35% share for now, which will be around £80k).

Our rate on the personal loan is quite low, we don’t pay much interest as it’s through my bank and we got a good deal. The rest of them are all pretty high APR. It’s places like Argos, very, and credit cards (Aqua, capital one) we always make more than the minimum payment but they just never get paid off. I worked out we pay around £250 a month on all these things and if we got a loan to cover paying them all off PLUS enough to buy a half decent car, we’d only be paying £240 a month!! 

Em_19324

@K_S I see what you mean, thanks! Hopefully it will be seen like that. I just feel like if we can pay one loan, it would be less interest and we’d have enough to cover the new car too and still be paying the same each month. Just fed up of paying so much interest but after the year we have had and with me becoming a student we can’t pay them off ourselves at the moment without dipping into deposit money and it took us so so long to save up for that! Our priority at the moment is getting out of renting because that in itself will save us a fortune! We pay close to £1000 each month for a 3 bed it’s just so much money, don’t get me wrong it’s a nice area and has nice schools but it’s just not going to be doable long term and I don’t want to move away from family. If we buy, even with shared ownership, we would be paying around £750 a month!