Which is more important - amount or %

Lihar40

Hi i am hoping you can help me. I have 2 loans currently and a PCP that i am paying off. I am due to renew my mortgage around September time so i am trying to make my affordability as good as possible. One loan is at £8200 and on 2.9%, the other is at £13500 and on 6.9%. I am due to get a payout of £8000 from my car being written off. I wont be getting another car, we will just stick with the pcp on the 1 car to generally reduce costs. In terms of using that payout to clear some of my debt, is it better that i clear off the £8200 loan and just have 1 loan and 1 pcp in terms of applying for my mortgage renewal? Or should i pay off £8000 towards the highest interest loan, but then have 2 loans and a pcp? either way will be the same amount of debt owed, but i just wasn't sure if having less credit files open is better than the total.  i am going to see what my monthly payments come down to if i did pay off the larger, higher interest loan but i just feel a bit confused about what to do. I hope it makes sense. 

MorningcoffeeIV

Always pay the most towards the highest rate debt. 

Balance is immaterial.

Lihar40

MorningcoffeeIV said:

Always pay the most towards the highest rate debt. 

Balance is immaterial.

Thank you - even for the purposes of a mortgage application? They would just want to see the outgoing amount rather than the total of debt, is that right?

Ebe_Scrooge

Lihar40 said:

MorningcoffeeIV said:

Always pay the most towards the highest rate debt. 

Balance is immaterial.

Thank you - even for the purposes of a mortgage application? They would just want to see the outgoing amount rather than the total of debt, is that right?

They look at both.  But if you reduce your debt by £8000, it doesn't matter (in their view) which debt is reduced.  But from your own personal point of view, it obviously makes sense to reduce the amount of interest you're paying.

One question - can you still keep paying the PCP on a car that no longer exists, or would you be forced to use the £8000 to clear the PCP?  Sorry, I'm not all that familiar with PCPs, but it's just a thought that occurred to me.

MorningcoffeeIV

They would look at both. 

By paying the highest interest rate debt, you will reduce your debt faster.

Lihar40

Ebe_Scrooge said:

Lihar40 said:

MorningcoffeeIV said:

Always pay the most towards the highest rate debt. 

Balance is immaterial.

Thank you - even for the purposes of a mortgage application? They would just want to see the outgoing amount rather than the total of debt, is that right?

They look at both.  But if you reduce your debt by £8000, it doesn't matter (in their view) which debt is reduced.  But from your own personal point of view, it obviously makes sense to reduce the amount of interest you're paying.

One question - can you still keep paying the PCP on a car that no longer exists, or would you be forced to use the £8000 to clear the PCP?  Sorry, I'm not all that familiar with PCPs, but it's just a thought that occurred to me.

Thanks, I have pcp on 1 car and the other car i had was paid off already, so rather than reinvest in a 2nd car, i thought it will be better to clear some of my existing debt with the payout. In that case, as the debt with the highest interest is the 13k loan, i think i will pay off a large chunk of that instead. thank you for the advice!

Herzlos

They are likely to look at the outstanding debt and monthly payments, so if you can pay £8000 towards the £13500 and reduce the payments rather than term, that'll appear to be the best option. Failing that, clearing the £8200 debt will get rid of that payment and you'll only have 1 outstanding loan.

DrEskimo

How much is on the PCP and what is the rate on that?

if the value of the car is same/more than the settlement on the PCP you could sell that car and settle than loan, use the pay out to get a cheap run about (~£3k) and then the rest at the loans. 

Could substantially reduce your overall debt that way.