Re-finance personal loan

andreeairimia

Hi, I'm new on the forum and looking for advice on how to get a better interest rate on my current personal loan with Barclays. I've been banking with Barclays for 8 years as my main bank for both income and savings. In May last year, I took a personal loan at an interest rate of 19% which I've been told it's because of low credit score from not owning a credit card or taking out a loan ever before.

Since then I started using a credit card, made sure not to go over the 20-30% utilization, paid both the loan and credit on time, but also moved my savings to a different bank for a better interest. I also made an extra payment towards the loan of almost 20% of the total loan amount. Meanwhile, my credit score went to 826 on ClearScore.

After all of this, Barclays is saying that my personalized rate is still 19% probably because I don't have enough funds on my Barclays account at the end of each month and even if I stored my savings with Barclays they would still want to see more than the loan monthly payment in the main account at the end of each month for around 6 months.

I've already waited 9 months to become trustworthy on their system and I don't want to pay 19% interest anymore, but when searching for any other offers, I only get Tesco's not pre-approved offer of 6% so even if I go to a different bank, it seems like I would have to start all over again, e.g. Santander's online calculator gives me a 30% interest rate! Should I take my chances with Tesco's offer or just wait to re-finance with Barclays? I feel like there's something else I'm missing as to why I don't get any other offers.

DullGreyGuy

For a standard personal loan the rate is fixed for the duration of the loan. You may however be able to take out a new loan at a lower rate and use the funds to pay off the original loan (remember there is a small penalty for early repayment when calculating how much you need the new loan to be). 

Pricing as a new customer is based on data from the credit reference agencies and various other industry databases. As an existing customer they will use both that and the internal data they hold on you. Lenders are by nature cautious and a lack of history is therefore negative as they like to see that others trust you, that you've kept to your commitments etc. 12 months is not a very long time in banking terms, most loans are longer and mortgages etc are often 25 years plus... so having 9 months history is better than nothing but its still relatively light. 

As long as you arent needing to apply for any other credit in the near term there is no harm in applying with Tesco, the worst they can say is no. Various lenders do offer a "soft search" option, these are always better as whilst its not a definitive answer its 95% correct and won't impact your ability to get credit elsewhere. 

Remember the CRA only records a search was done, it doesn't record the decision made so were you to do a full application with Barclays, Tesco, Sainsburys etc and then do a 4th application elsewhere the lender will see the prior three and have no idea if this is going to be your fourth loan or if the other 3 rejected you so will factor that in in their decision.

ManyWays

How large is this loan and what is your income?
Any new lender may not want to lend you money as you may not use it to clear the Barclays loan but could buy a car with it or gamble it away, then you would have two loans to pay.

andreeairimia

The loan was 32k, now it is down to 24k and I want to pay extra so that I'd only need to borrow 20k. My income is more than 6 times the monthly payment. This is what I don't understand, even without the credit history, Barclays surely can see that I can afford this loan at this point? Or exactly for that reason, they want me to keep paying the 19% interest and they probably know other banks won't give me a better rate?

I recently linked all my accounts on ClearScore so lenders see both the income and savings accounts, however I still don't get other options besides the pre-approved guarantor scheme or Tesco/M&S 6% APR with 95% approval chance. I am worried that, because Tesco's 6% representative APR isn't pre-approved, the rate would end up being closer to the 20-30% that I get from other banks. Then I'd end up rejecting the loan and have 2 applications in my history already.

sourcrates

Why not just save your x6 monthly loan payments from your salary and pay the loan off early?

andreeairimia

Because it means paying a high interest rate for another year or so and not risking not having a safety net in savings.

TheAble

It doesn't sound like there's a great deal you can do for the meantime in terms of refinancing. Would suggest overpaying as much as possible to minimise the interest you pay and get the loan cleared soonest.