Overpay Debt or Increase Pension Contribution

Grumpyoldgit

I have a personal loan with an outstanding balance of £27500, 45 months left, £718/mth, which is manageable at the current time. If I overpay £100 a month I save £39 in interest, according to the banks’ loan calculator. I am guessing that is over the term of the loan.

I am 58 this year so looking closer at my pension pot, which is not as healthy as it could be, I could pay the £100 into this.

Trying to decide if I would be better paying off £100 more on the loan or investing £100 more in my pension pot. Not sure how to work out the possible increase in 4 years (based on the loan term) on my pension.

Any advice welcome.

DrEskimo

What's the APR of the loan?

Grumpyoldgit

DrEskimo said:

What's the APR of the loan?

The loan APR is 8.73%

I have had a look on the loans on here and it looks like I could get a £27k loan over 4 years (I don’t want to increase the term) at 4.9% and save £100/mth on the minimum payment, if I then overpay that loan, it should take it down even quicker?

[Deleted User]

I doubt you'll be able to get a loan for a further 27k at a lower rate, or at all. 

Assuming you're not a higher rate taxpayer, I would focus on getting the loan cleared. 

DrEskimo

Grumpyoldgit said:

DrEskimo said:

What's the APR of the loan?

The loan APR is 8.73%

I have had a look on the loans on here and it looks like I could get a £27k loan over 4 years (I don’t want to increase the term) at 4.9% and save £100/mth on the minimum payment, if I then overpay that loan, it should take it down even quicker?

As above, I highly doubt you will be accepted for another £27k loan at a low rate whilst already servicing a £27k loan.

At that APR I would overpay the loan as much as possible. You will get tax relief on pension contributions, but I think even that plus a conservative return wouldn't beat a guaranteed saving of 8.73% by paying down the loan.

TheMilkmansDad

I'd get that loan paid of as quickly as possible. Once paid of, put the money you would have paid into your pension pot.

[Deleted User]

Pensions take time to grow, if you are 58 and hoping to retire at 65/66 then investing now is more sensible than in 4 years as it gives more time for growth and blips. 

Consolidation loans are very rarely given as you could take the new 27k and spunk it on Noggin the Nog at the 3:30 at Kempton and suddenly have 54k of debt, hence they judge you on both loans not a 27k single debt and few people would have the finances to service an unsecured 54k debt

Grumpyoldgit

Deleted_User said:

Pensions take time to grow, if you are 58 and hoping to retire at 65/66 then investing now is more sensible than in 4 years as it gives more time for growth and blips. 

Consolidation loans are very rarely given as you could take the new 27k and spunk it on Noggin the Nog at the 3:30 at Kempton and suddenly have 54k of debt, hence they judge you on both loans not a 27k single debt and few people would have the finances to service an unsecured 54k debt

Thanks for all the replies.

I was wondering why I wouldn’t get a loan to pay off the existing loan, as mentioned by others above. That sort of explains it, doesn’t hurt to apply though? I have no mortgage or other loans and an excellent credit rating.

Seems paying off the loan should be my main focus as I have spoken to a pensions advisor and he says I have sufficient funds to retire early (62) but I can’t see it to be honest!

Ebe_Scrooge

Grumpyoldgit said:

Deleted_User said:

Pensions take time to grow, if you are 58 and hoping to retire at 65/66 then investing now is more sensible than in 4 years as it gives more time for growth and blips. 

Consolidation loans are very rarely given as you could take the new 27k and spunk it on Noggin the Nog at the 3:30 at Kempton and suddenly have 54k of debt, hence they judge you on both loans not a 27k single debt and few people would have the finances to service an unsecured 54k debt

doesn’t hurt to apply though?  I have no mortgage or other loans and an excellent credit rating.

A single application every so often is neither here nor there as far as any effect on your credit history goes.  So yep, nothing lost by taking a punt.  As others have said, in all likelihood, you'll struggle to be accepted.  And bear in mind, the "credit rating" as dished out by the CRAs is very different to how a lender will view you.

Grumpyoldgit said:

DrEskimo said:

What's the APR of the loan?

The loan APR is 8.73%

 it looks like I could get a £27k loan over 4 years 4.9%

Even if you do get accepted, remember that the "representative APR" advertised (or even suggested by comparison sites) is only offered to 51% of successful applicants.  You may very well find that when your application is processed, they offer you a loan at a much higher APR.

Grumpyoldgit

Thanks Ebe 👍

Albermarle

Seems paying off the loan should be my main focus as I have spoken to a pensions advisor and he says I have sufficient funds to retire early (62) but I can’t see it to be honest!

Putting the loan to one side, you may want to post your pension situation on the pensions forum.

Questions about 'have I got enough to retire' are quite common, and you should get some sensible comments. Best to post as much detail as possible, and make it clear what type of pension it is .

Pensions, Annuities & Retirement Planning — MoneySavingExpert Forum