Loan for extension

runningoncoffee

We need approx £35-40k to finance extension- have around £105k already from equity when we moved and savings, as the plan was to take into account work needed when we moved.  Having spoken to our mortgage provider it looks like it would cost us more in interest to get it through them than a personal loan so have been looking at the latter.  Are there any brokers for personal loans that are recommended? I've seen Pegasus finance had some good reviews but am completely clueless to be honest! Also would be grateful for advice as to whether to apply for this in my name only or joint (as husband has the PCP agreement in his name).  Have checked online calculators and we can afford repayments but am terrified that we will get rejected! Other option is a smaller personal loan then 0% credit card but am wary of then looking like we are trying to get too much credit. Feels like I'm a catch 22 as don't want to start work without knowing we can get a loan, but don't want to apply too early! Advice much appreciated! 

CliveOfIndia

I suspect you'd find it difficult to get an unsecured loan for £40k as it's probably too high an amount for most lenders.  Adding it to your mortgage is one option, but as you rightly say, it can end up costing you more.  Although the APR will likely be lower than a personal loan, the fact that you're paying it over a much longer time period means you'll pay more interest overall.

A credit card is probably not a realistic option.  Firstly you'd need a card with a high enough limit.  Secondly you'd need your builder/plumber/whatever to accept credit cards - many won't.  Thirdly, unless you can repay it in full by the end of the promotional rate, it'll cost you a fortune in interest (assuming you're thinking about putting a large amount on it).

If I'm understanding your post correctly, are you saying you've already got £105K saved and you're looking for an additional £35k-40k?  Would it be feasible to save up for a couple of years before starting?  Or else, get the bulk of the work done then do the remaining bits piecemeal, as and when you can afford them.

One other thing to bear in mind, should you decide you do want to add it to the mortgage.  If you default on an unsecured debt, that's your credit file trashed for 6 years - not ideal, but not the end of the world in the grand scheme of things.  Default on your mortgage and you could potentially have your house repossessed.  And you have to plan for what happens if interest rates carry on rising - you may be able to comfortably afford repayments now, but what happens if interest rates increase dramatically?  None of us have a crystal ball, but personally I'd be wary of taking on a substantial debt just now, unless your interest rate is fixed and you're sure you'll be able to repay it before your fixed rate expires.

runningoncoffee

Thank you, definitely lots to think about.  I might have another chat to the mortgage lender and if we go down that route consider perhaps overpaying to try to shorten any new loan duration.  

 

Clive_Woody

You would pay more total interest if you borrowed this money as a mortgage and repaid it over 25yrs, but most mortgages I believe allow overpayments during any fixed rate period and then when you renew you can pay a lump sum.

You might be better borrowing as a mortgage as getting a personal loan for this amount will be challenging, but then make sure you overpay to avoid excessive interest charges

horsewithnoname

If you are able to add it to your mortgage but pay the amount a loan would cost - providing you are able to overpay - then you’d pay it off as though it was a loan, but probably at a better interest rate.