Is it always better to pay off loans before applying?

J1one

After speaking to a MA a month ago, I set off to overpay on some small loans I’ve been harbouring.

I decided to speak with another MA yesterday to see if they could access any better deals for me and they told me it makes no different to the amount I was offered wether I paid them off or not. I could hear him tapping away so I’ve got to trust he was running the sums.

So rather than ringing up multiple MAs - what is your experience? 

These are tiddlers (repayments of £120 in total) and I had planned to overpay them. But with it not affecting my lend, why wouldn’t I choose to save that money towards a higher deposit? 

Just asking  these questions now before I get caught out later down the line!

Neilos9

£120 is tiddlers if earning £120,000 a year - its relative.
100% will make a difference, but if your not looking to maximise your borrowing its not an issue.

K_S

@j1one The first thing you need to ascertain is whether the £120 loan repayments (with loans it's the monthly repayment that matters, not the outstanding loan amount) make any difference to how much you can borrow. It may not, depending on your income levels and the term that you can stretch to.

You could play around with a couple of lender calculators and see what the impact is (if any).
https://online.accordmortgages.com/public/mortgages/quick_enquiry.do
https://www.santanderforintermediaries.co.uk/calculators-and-forms/affordability/

Even if it does impact your borrowing and you decide to overpay the loan, take care to understand how the overpayment impacts your monthly payment. If the amount remains the same and it's only the term that decreases, then it's unlikely to make a difference to lender affordability calculations.

J1one

Thanks KS. 

I spoke to Tesco before I started repayment and set the overpayments to reduce the monthly repayment. 

The other is an eon old loan, I’m repaying the Tesco first as it’s still accruing interest. 

That’s how the broker explained it- he said I’m in an income bracket where the repayments don’t affect what I can borrow.