2 x 25k loans 6.1 and 9%

olb81

I got these two loans as i wanted to make sure i could buy a house without a mortgage.
The house has come in the middle of my price range so i only need 30k loans.
Should i pay the 9% loan back or 15-20k of it or just keep it going?
I have no other debts so can afford both repayments currently.

Nasqueron

lenders absolutely do not want you to take normal bank loans to buy property and applying for a loan to buy it while not declaring that is problematic to say the least - why do you want a 9% loan and not a mortgage at 4-6%?

Without knowing your income, it's unknown if you could get another 30k loan on top, so 80k of debt, if you were earning £200k a year maybe, £50k, maybe not

MeteredOut

Notwithstanding the very valid question above, why would you want to pay 9% interest on any money you don't need, even if you can afford the repayments?

Exodi

Nasqueron said:

lenders absolutely do not want you to take normal bank loans to buy property and applying for a loan to buy it while not declaring that is problematic to say the least - why do you want a 9% loan and not a mortgage at 4-6%?

Without knowing your income, it's unknown if you could get another 30k loan on top, so 80k of debt, if you were earning £200k a year maybe, £50k, maybe not

Agree entirely with your first paragraph.

Regarding the second paragraph, I'm a bit confused as I interpreted the OP differently it seems (mainly that the OP has already borrowed the money they need). How I read it.

> The OP has almost enough cash to buy a house outright, but is short £10k-£50k depending on the house they pick.

> The OP takes out two £25k loans (at 6.1% and 9%).

> The OP then picks a house in the middle of their price range, meaning they only need £30k from the loans they've taken out.

> Since they now no longer need all the money from the loans, they're asking whether they should pay the 9% loan back, or part of it, or 'just keep it [the loan] going'.

FWIW, I think the OP is an absolute lunatic on every front.

They should not have taken out personal loans to buy a house (a mortgage would be at half the interest rate...)
They should not have taken out personal loans before they even decided which house they wanted to buy
They should not be thinking of just sitting on £20k and paying 9% interest for the sake of it.

Madness, from start to finish.

olb81

I checked with my solicitor regarding the loans and they said it wont be a problem so long as im not wanting a mortgage.
The 6.1 rate on 25k isnt a lot more than a mortgage, plus is more flexible and will be gone in 5 years.
I just wondered whether to keep the second loan and have some money for a change for a better car etc.

swingaloo

According to your other thread on here today you are probably going to leave your job and claim UC. How will that affect your affordability?

Exodi

olb81 said:

I checked with my solicitor regarding the loans and they said it wont be a problem so long as im not wanting a mortgage.
The 6.1 rate on 25k isnt a lot more than a mortgage, plus is more flexible and will be gone in 5 years.
I just wondered whether to keep the second loan and have some money for a change for a better car etc.

6.1% on £25k over 5 years is £484 a month with £4,067 paid in interest over the term.
4.14% on £25k over 5 years is £462 a month with £2,720 paid in interest over the term.
(rate when plugging in your rough numbers on Nationwide).

And finally, 9% on £25k over 5 years is £519 a month with £6,137 paid in interest over the term.

I just don't understand why you'd borrow money at a blend of 6.1% and 9%, when you could borrow the money at ~4% (as you're helped by a low LTV). Who wouldn't want to save four figures in interest?

As to your justifications - you can get a mortgage for 5 years, though I'm not clear on what you mean 'it's [the loans are] more flexible', unless you're hinting at being able to spend the money elsewhere?

Your last sentence 'keep the second loan and have some money for a change' is a red flag that we see quoted on the debt forums quite a bit. Have you come into a lump sum quite quickly then as you mention it would be good to 'have some money for a change' and also because you are acting (just my opinion) quite carelessly about the whole thing. I'm sure you can appreciate that taking out a loan to 'have some money' doesn't make logical sense - if you look at the medium term and factor in the interest, you are removing money from your pockets.

If you didn't immediately need a better car before, you shouldn't just start thinking of ways to spend the money by virtue of having it in the bank. Likewise, if you wanted a better car, you'd be better off getting a HP agreement which is secured against the car, but would bring with it a lower interest rate.

Paying the loans back and refinancing through a cheaper mortgage is a no-brainer. If you're not willing to do that, at least pay most of the 9% loan back you don't need for the house purchase.

You are on a money saving forum - you are not going to get any one to agree that you should go on a reckless spending spree because the loan money is in your account.

olb81

Thanks for the last post. What about putting some into index funds as ive read they average 10-12% a year, this will beat the 9% over 5 years.

Exodi

olb81 said:

Thanks for the last post. What about putting some into index funds as ive read they average 10-12% a year, this will beat the 9% over 5 years.

I really don't know why you have such aversion to paying the loan back.

That 10-12% return figure you are citing is typically accredited to the S&P500 (which has returned an average annual return of 10.33% since 1957), is based on index returns (so doesn't factor in the plethora of costs associated with administering an index fund) and is based on US dollar returns. It also doesn't factor in inflation (not that that's relevant here).

Not only that but you're contemplating trading a guaranteed 9% (anyone with £25k in cash would absolutely bite a banks hand off if they were offered 9% interest on the whole amount, which is effectively the option you have available to you by paying it back) for a potential better return (but also a real possibility of no returns like VUAG (a GBP denominated version of the S&P500) saw for nearly 2 years between 2022 & 2023, or even negative returns - all while you're paying 9% to service the loan). I fear you have become blinkered by the money being in your bank.

A common thought experiment posed to investors that may help - if you hadn't borrowed the £25k at 9% so it wasn't in your bank now, tomorrow would you apply for a loan for £25k at 9% to invest? If you wouldn't then that tells you what you need to do.

You need to stop looking for excuses to keep the loan.

R_P_W

I don't think this poster is real or serious

retiredbanker1

I agree but let's play along for a while and ask the OP what reason he gave on his loan application?

If he was truthful and said property purchase then it would have been an automatic decline as banks do not lend unsecured to buy houses. I also think most solicitors would know this so IMO he would struggle passing the law firm's anti money laundering procedures.

If he put something else on the application he has committed fraud - pure and simple.