which loan to pay first

Janes888

Hi i am in a position to over pay on my loans and was wondering which is best to pay as they are over different periods and rates.  Unsure of which  of loans 1 to 3 i should attempt to clear 1st or just spread payments equally.  Happy to keep loan 4 to end of the 5 years due to interest amount.

Loan 1: Lloyds was 25k over 5 year at 7.9% payment of 502.46
Loan 2: HSBC 15k over 4 years at 8.9% payment of 370.1
Loan 3: TSB 12k over 3 years at 9.9% payment 384.51
Loan 4: Nationwide 25k over 5 years at 2.9% payment 447.69

Ebe_Scrooge

From a purely monetary perspective, it makes sense to overpay the one with the highest APR, so long as there are no fees for making an overpayment.  If there are fees for making an overpayment, then see if the next-highest APR loan would charge fees - or else, use one of the many online calculators to see if you'd still save money even allowing for the fee.

From the figures you've quoted, the TSB loan would be the one to overpay (assuming no fees).  It's the highest APR, also the lower amount and shortest period.  So by making a big dent in that, you'll save money, but there's also a big psychological boost once any loan is fully repaid.  You'd then put the £384.51 each month that you were paying, towards the next-highest APR (in addition to what you're already paying), thus clearing that one faster.

Janes888

Thanks TSB has now been paid off will add the 384.51 to overpay on my HSBC loan now

Janes888

Follow up question to this.  I have been paying the 384.51 extra to my HSBC loan but was wondering if i would be better off stopping my £650 a month payments into my s&s isa to clear the loans earlier or is it better to continue paying into the s&s isa as i have been and continue clearing the loans paying any overpayments into HSBC which has the highest APR of the remaining loans

Ebe_Scrooge

How much interest are you earning on the ISA?  If it's less than what you're paying on the loan then you'd be better off putting the money towards the loan (again, assuming you're not penalised for making overpayments).  It doesn't make sense to be paying 8.9 % interest whilst earning (for example) 3% on your savings.  Once the loans are cleared then you can start chucking money back into savings.

Whilst it's eminently sensible to have a savings fund, in terms of cold hard cash it makes sense to prioritise clearing the debt, if that debt is costing you more than your savings are earning.

Grumpy_chap

Janes888 said:

wondering if i would be better off stopping my £650 a month payments into my s&s isa to clear the loans earlier 

Ordinarily, yes.  As @Ebe_Scrooge said, it is all down to interest rates.
Once you have cleared the loans, be sure to then restart the payments to savings to create an emergency fund again.
If the savings were outside of the ISA wrapper, you'd also have to consider the impact of income tax on the savings rate versus the loan rate.  Inside the ISA wrapper, income tax is not a concern.

Clive_Woody

Ebe_Scrooge said:

How much interest are you earning on the ISA?  If it's less than what you're paying on the loan then you'd be better off putting the money towards the loan (again, assuming you're not penalised for making overpayments).  It doesn't make sense to be paying 8.9 % interest whilst earning (for example) 3% on your savings.  Once the loans are cleared then you can start chucking money back into savings.

Whilst it's eminently sensible to have a savings fund, in terms of cold hard cash it makes sense to prioritise clearing the debt, if that debt is costing you more than your savings are earning.

S&S ISAs don't pay interest, but given current state of the world, returns are pretty low. The dilemma being that with markets down the OP could buy cheap for when things recover, but potentially might be better off diverting the money to pay off loans to get debt cleared. Certainly don't cash in any S&S ISAs now as you will be crystalising any losses over recent months.

Janes888 -  you might also want to look at creating a more manageable budget as £77k of loans is not insignificant. I obviously don't know your circumstances, but in your shoes I would be looking to clear these debts and avoid getting into a similar position in the future.

[Deleted User]

S&S ISA is actually a good time to buy as unit prices are down, maybe reduce the amount going in and pay more off the loan but you'll regret not buying units cheap when they are worth more in 1-5 years or however long it takes to recover - provided your debts are manageable

PandaGirl6

3, 2 ,1. 

Due to APR and also the snowball mentality - loan 3 has the smallest balance and will motivate you to be debt free and give you a sense of accomplishment once paid off sooner.

Build a 3 month expense emergency fund, so you don't have to rely on loans/credit cards at all going forward.
Once that's done (assuming not done already) stop the ISA contributions and pay off loans.

Voila

Janes888

Thanks for all the advise.  I dropped my S&S ISA payments to £350 a month from the £650 i had previously and have now managed to pay of my HSBC loan leaving me with loans 1 and 4 from the original post.  I am now paying the money that was paying my HSBC loan onto my Lloyds loan and plan to leave my Nationwide loan going to the end since interest is only 2.9% and once my Lloyds is paid off i will look at increasing my S&S payments from £350 to about £900 a month and remaining to easy access savings