Consolidating Debts & Buying a New/Used Car

SamT93

Hi, 

So over the past few years, my partner and I have accrued almost £12k in debt across overdrafts and credit cards due to life circumstances, buying a house and the unforeseen problems that come with that. I have never missed a payment, however due to the mortgage being relatively new and an issue with the electoral roll my Credit Score dropped from 980 to 672 in the space of a month. I queried this with Experian as it seemed an enormous drop but they assured me that the algorithm was working fine. Having resolved the electoral register issue, my score is now 771, not great but not terrible. My partner's score is still approx 950.  

We both have a stable income earning a combined £64.5k a year, (me £33k, her £31.5k). Our monthly outgoing budget is as follows:

Mortgage (fixed for 5 years)	-£1,067.64
Gas & Electricity	-£225.00
Water	-£40.68
Council Tax	-£164.77
Building & Contents Insurance	-£36.30
Life & Critical Illness Insurance	-£49.85
Wifi	-£30.00
TV License	-£31.80
Netflix	-£10.99
Prime	-£8.99
Disney+	-£7.99
Spotify	-£9.99
Phone Contracts	-£80.00
Post-Grad Student Loan/Other DD's	-£180.00
Gym	-£35.00
Food & Essentials	-£300.00
Car Insurance	-£30.59
Car Tax	-£11.81
Petrol	-£100.00

Total £2,421.40

This leaves us with approx £1,500. - we put £250 a month in a holiday fund, and a further £250 in an emergency fund and give ourselves an allowance of £300 each to spend on what we like i.e. out with friends, golf, PT classes, drinks etc leaving £400. 

I have worked out we are paying approximately £320 p/m in interest and try to pay slightly over minimum payments at around £450 a month but we are not making a dent in the debt. 

My car has just ticked over 100k miles and is on its last legs, just about scraping a pass in its MOT last month. It clangs, rattles and has a minor engine oil leak and basically needs to be sent to the scrapyard asap. 

We decided that the best option would be for my partner to apply for a loan of £30k with our bank with an APR of 5.4% over 8 years resulting in a monthly payment of around £380. This would pay off all the debts and leave us with £18k to spend on a used car. She was rejected for this based on affordability.  

We are now assessing our options, and looking for advice. We are thinking of submitting a joint application for a loan of the same amount, however, we are worried that my credit score will affect either the decision or the APR rate. We are even more worried that if we were to suffer another rejection, then getting any type of loan would be even less likely. 

We have thought about applying for a £12k loan just to consolidate the debt, and then get a car on a PCP finance deal, however, again my credit score means that I will likely not be offered the representative APR rate, and we cannot do it through my partner as she does not have a driving license (this appears to be a standard stipulation across the board that the person taking out the finance has to be the registered keeper and primary driver). Also, this option would mean that we would likely be paying more per month for two types of credit which is obviously something we would want to avoid. 

Any advice or assistance would be greatly appreciated. 

Thanks 

MorningcoffeeIV

Your score has nothing to do with you getting credit, any more than your horoscope has. Ignore it.

Lenders are looking at your credit files and debt. Basically, you have too much debt and are too high a risk.

Pay off your existing debt and save for a cheap car, You don't need a shiny new one and you also can't afford it.

If you cut the golf, personal trainers and holiday for a bit, you'd be in a massively better position. Head to the DFW boards for help - you still have time to sort this before you go under, but not if you continue to spend or borrow.

sourcrates

Please stop applying for loans, 100,000 miles is nothing on a modern car, can you try and get it patched up?.

Your best option would be to get some debt advice on the DFW boards before you get in too deep, as borrowing your way out of debt seldom has a happy ending.

You may be able to stem this by budgeting better, you have a good income, there should not be any need to borrow money on that salary.

Ryan_Holden

Welcome to the board

As above, it's great you have a good understanding of your finances and I think your intentions are good but your priorities are wrong.

You earn more than enough between you to service that debt in a reasonable amount of time. £600 of fun money between you could be stripped back, £250 holiday savings can be diverted and heck, if your emergency fund is reasonably healthy you could divert that.

Re: your car, my daily car cost £4300 and does everything I need. It's bland, anonymous and unexciting, but it means no payment and no loan.

Hope this helps, you sound smart enough to be able to get on top of it. It's just the best way may not be the most exciting 2023 for you.

SamT93

Thank you all for the advice. 

Re the car; it's nearly 16 years old and only has three doors, bought it for £1,200 3 years ago. We have recently taken on more responsibility looking after my partner's uncle with learning disabilities and it is a nightmare trying to get him in and out of it. I am a competent driver and have stopped driving on motorways as it does not feel safe to do so. I have a 1 year old niece that I would like to help out more with too but neither me or my brother feel that the car is safe enough to transport her round. 

Whilst I agree with all of your comments, a car (not necessarily shiny and definitely not new) but one with 5 doors and better safety features is an absolute priority in the immediate future. 

I agree that we could cut back on some of the lifestyle expenditure, but the monthly payments on a £30k loan are affordable for us, would be less than we currently pay and result in less interest and a car. Is this not a sensible solution?  

Re: the Credit Score, when looking at PCP deals, the dealers do a soft credit search and they state that based on my credit score I am not eligible for the representative APR so I do think there is some credence to it. 

MorningcoffeeIV

No, there's no credence to it at all.

No one see it but you.

Lenders will generate their own credit score but you don't get to see that.

Ryan_Holden

Moving slightly off topic, my daily car is a VW Golf Estate, 2012. As I mentioned before it cost £4300 and in the 3 and a half years I've owned it it's looked after me for almost 70,000 miles (now on 107k). 

It's sturdy, reliable, safe, has lots of storage and ISOFix points. I think something like that, while not a looker, might be a good option to consider. I had a quick scour of Autotrader and there are plenty around at the moment.

Back on topic, you might agree it's affordable for you, and it is. But so is paying off your debt rather than borrowing more to service that debt which I guess is what the lender is considering. I totally get the interest saving you're trying to make but the reality is you've been rejected by a lender because of your circumstances, so your hand is kind of forced at least until you're willing to try another lender.

SamT93

@Ryan_Holden

Thanks, I will take a look at the car. 

Sorry I think you've misunderstood my original post. I haven't been rejected, my partner when applying for a personal loan was rejected due to the affordability of paying back £30k on her salary, my finances weren't taken into consideration. We are hoping that if we applied jointly we would be accepted as if it was only the affordability capabilities would essentially double. The concern was whether due to my Credit Score we wouldn't be accepted, but if @MorningcoffeeIV is correct then that shouldn't be an issue. 

Would your opinions change if we looked at say a £20k loan and only spent £7k on the car? 

The debt has only accrued due to having to replace the boiler very soon after buying our house and in turn have the house essentially ripped up and new pipes plumbed in which cost nearly £5k and the rest was slowly spending on credit cards a couple hundred here or there without setting aside the money to pay back, a lesson we have learnt the hard way. We have a strict budget, as detailed in my original post and we have not exceeded this or spent beyond our means in the past year and our spending habits from our younger years have been reigned in.

In my opinion it's a win/win in terms of paying less interest and being able to purchase a more reliable/better car - but that's why I'm here because I'm looking at a financial minefield and need to consider as much advice as possible. 

Ryan_Holden

You're welcome, I hadn't misunderstood though. The lender won't care what you're earning really for a loan that's just in your partners name.

I don't really have an opinion on your car, I was just trying to show you that you don't need to spend lots of money to get a utilitarian vehicle. I have to admit I'm a bit smitten with my Golf but that's only because it's simple and I own it outright.

No one will judge you here for the reasons for accruing the debt and it's brilliant you've learned from your mistakes. Lots of us have been there when younger, myself included to a degree. And your plan is definitely a win win as you'll reduce that interest, but it relies on you getting jointly accepted. That risk to run is yours and I don't know enough about acceptance to help.

But I think we have different views on a strict budget. For me, £850 of fun money a month while paying £450 of minimum card payments is not a strict budget.

And I still firmly feel that you jointly have the capacity to make a real dent on this without needing to borrow more.

SamT93

No I know they wouldn't, that's why she got rejected and why I think we would be much more likely to be accepted if we applied jointly.

Thanks Ryan, I do really appreciate your help and insight despite me trying to fish for the answer that I want not what I necessarily need! 

What is the risk though? If we applied and got rejected, then we would be left with no choice but to go with your plan of reducing fun money and making dents into the debt and having to save for a car that way. I am of the opinion that that is plan B as a replacing my car is such a massive priority right now, but you are saying it should be plan A.  

Ryan_Holden

The risk in my opinion would be having another application on your partners credit history, but it's something I can't quantify Sam, only because I don't know. MorningcoffeeIV is likely to have much more expertise than I. I just want to be transparent because I'm not a financial advisor or anyone clever lol.

And you're welcome. No one likes the idea of cutting back, but imagine cutting back hard and basically destroying that debt with a 2023 year of change rather than having £380 to fork out for the next 8 years (and a car granted).