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Pay off loan to get bigger loan
Hello,
I took out a loan of 12k last year to buy a car. Im looking to sell this car now and pay off my existing loan as the value is worth more than the loan. I would like to get another loan soon after (20k) as im able to secure a decent rate due to good credit. My bank told me i might get declined because they have a signal that flags when a customer takes out multiple loans in a short timeframe.
My question is,is this standard practice across all lenders? If i clear my loan and apply with another lender, would it still impact me regardless?
Many thanks
I took out a loan of 12k last year to buy a car. Im looking to sell this car now and pay off my existing loan as the value is worth more than the loan. I would like to get another loan soon after (20k) as im able to secure a decent rate due to good credit. My bank told me i might get declined because they have a signal that flags when a customer takes out multiple loans in a short timeframe.
My question is,is this standard practice across all lenders? If i clear my loan and apply with another lender, would it still impact me regardless?
Many thanks
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Comments
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Your borrowing history will always be a factor with lenders. Habitual borrowing is a danger sign, but so is adding to your existing debt. Either way, you're presenting lenders with a fairly high risk profile.
Try to break the habit and only borrow when essential.1 -
femistico said:Hello,
I took out a loan of 12k last year to buy a car. Im looking to sell this car now and pay off my existing loan as the value is worth more than the loan. I would like to get another loan soon after (20k) as im able to secure a decent rate due to good credit. My bank told me i might get declined because they have a signal that flags when a customer takes out multiple loans in a short timeframe.
My question is,is this standard practice across all lenders? If i clear my loan and apply with another lender, would it still impact me regardless?
Many thanks0 -
You have two contradictory statements in your post. First you say "I'm able to secure a decent rate due to good credit" and then "my bank told me I might get declined because they have a signal that flags when a customer takes out multiple loans in a short timeframe."
I wouldn't keep taking out loans. The problem is that coronavirus has made lenders more cautious. So yes, I believe it is standard practise across all lenders right now. People are also having difficulty getting credit cards that a few years ago were easy to obtain. Don't forget that even if you DO have good credit, affordability also comes into the equation. If lenders don't think you will be able to afford repayments, you won't be able to get a loan.
If you clear your loan and then apply for a new loan with another lender, there would be a hard search on your credit report.
But then wouldn't you still need a car? You've only had yours for a year and I understand that it is now worth more than the loan but wouldn't it be wise to hang on for a while? Or if you feel you must sell the car, then use the proceeds of the sale to pay off what's owing and put what's left over down as the deposit on something cheaper. That is IF you are able to get another loan.Please note - taken from the Forum Rules and amended for my own personal use (with thanks) : It is up to you to investigate, check, double-check and check yet again before you make any decisions or take any action based on any information you glean from any of my posts. Although I do carry out careful research before posting and never intend to mislead or supply out-of-date or incorrect information, please do not rely 100% on what you are reading. Verify everything in order to protect yourself as you are responsible for any action you consequently take.2 -
femistico said:I would like to get another loan soon after (20k) as im able to secure a decent rate due to good credit
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Thanks for your replies. This has been very helpful.
My thinking was if you're able to clear of a loan, regardless of how often they are taken, lenders wouldnt mind. From the replies above it seems thats not the case and it might impact me negatively. (i didnt know this prior)
I assumed if lenders got paid back they'd be more than happy to lend due to past history.
Just to give some more clarity,- i asked my lender if I could top up my existing loan or pay off the current one and get a new a one. I was then advised it would most likely be automatically declined (as mentioned above).
Ebe_Scrooge said:Aside from the excellent advice given so far, you cannot possibly know that you are "able to secure a decent rate". Your credit rating, as dished out by the CRAs, is seen only by you, and has no bearing whatsoever on how a lender will view you. Yes, you'll see "representative APR" advertised, but that doesn't mean that's the rate you'll be offered. You'll only know what rate you can borrow at once your application has been processed and accepted.- In terms of credit rating, all my credit cards, previous loans (years ago) and mortgages, have been at the advertised rate. When I compare loans, i get between 90 - 95% acceptance rate, this is why i assume i'll be able to secure said rate. But I agree with your point as well.
Grumpy_chap said:What would the loan for £20k be for?- The 20k would go towards another car which was my first choice. I chose the 12k car as i needed something relatively quickly. Ive never been a fan of pcp or hp due to interest rates hence why Id prefer the loan option. However, i see i might have shot myself in the foot by taking my existing loan
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femistico said:Grumpy_chap said:What would the loan for £20k be for?
- The 20k would go towards another car which was my first choice. I chose the 12k car as i needed something relatively quickly. Ive never been a fan of pcp or hp due to interest rates hence why Id prefer the loan option. However, i see i might have shot myself in the foot by taking my existing loan
£12k is a lot to have spent on a "stop-gap" car.1 - The 20k would go towards another car which was my first choice. I chose the 12k car as i needed something relatively quickly. Ive never been a fan of pcp or hp due to interest rates hence why Id prefer the loan option. However, i see i might have shot myself in the foot by taking my existing loan
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femistico said:Thanks for your replies. This has been very helpful.
My thinking was if you're able to clear of a loan, regardless of how often they are taken, lenders wouldnt mind. From the replies above it seems thats not the case and it might impact me negatively. (i didnt know this prior)
I assumed if lenders got paid back they'd be more than happy to lend due to past history.
This is the trap people fall into, especially with consolidation loans, thinking they're paying debt off when they're just shifting it around. Don't fall into that trap, it usually ends badly.1 -
y3sitsm3 said:But you're not really able to clear off the loan, are you? You're taking out another 8k of borrowing on top of what you already had. If you paid off the loan and that was it, you'd be carless.
This is the trap people fall into, especially with consolidation loans, thinking they're paying debt off when they're just shifting it around. Don't fall into that trap, it usually ends badly.
Thankfully Im in a position to pay off both loans fully with cash but thats a last resort hence why i was thinking of other "clever" options.
I've always preferred to let my money work for me so parting with 20k cash for a vehicle doesnt sit well with me (as much as I want it). I rather get a loan to pay the car at a low rate and invest the funds at a higher rate (which im currently doing) to offset the loan. (depreciation excluded)
Hope that makes sense. I know its not everyones cup of tea but it fits my lifestyle
Thanks again for your comment
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