Borrow more to cut interest rate and repayments, but extend the term?

NotARealName123

Just under 2 years ago, I applied and got my first ever loan for £13.5k from NatWest, at 11.9%.

After making consistent repayments(And managing a credit card as sensibly as possible) my credit rating has risen, the remaining balance is £9.5k and now NatWest are sending me adverts asking if I want to borrow more. 

I've had some unexpected bills this month, but I do have an emergency fund. However, I am considering leaving the emergency fund intact, and taking the minimum extra amount (£1000) which would reset my loan to £10,800 and add 18 months back on to it, but drop the interest rate to 6.5% and lower the monthly repayments by £50. This would also cover all the bills and leave me able to focus on saving for another lump repayment.

My thoughts are that this would make paying it off with a partial repayment cheaper(I was always planning on doing this and had been saving a little every month for this purpose), as well as leave my contingency fund untouched for a real emergency.

Does my thinking make sense? I could also shorten the term of the new loan to make the new repayments the same as what I pay now, but pay it off much faster? 

fwor

Frankly, it's just sell-on. It's a way to persuade you to extend the term and so pay more to use more of their money for longer.

A better way (IMO) is to use your own cash to pay for the unexpected bills, and pay off the original loan as soon as possible.

Emmia

NotARealName123 said:

Just under 2 years ago, I applied and got my first ever loan for £13.5k from NatWest, at 11.9%.

After making consistent repayments(And managing a credit card as sensibly as possible) my credit rating has risen, the remaining balance is £9.5k and now NatWest are sending me adverts asking if I want to borrow more. 

I've had some unexpected bills this month, but I do have an emergency fund. However, I am considering leaving the emergency fund intact, and taking the minimum extra amount (£1000) which would reset my loan to £10,800 and add 18 months back on to it, but drop the interest rate to 6.5% and lower the monthly repayments by £50. This would also cover all the bills and leave me able to focus on saving for another lump repayment.

My thoughts are that this would make paying it off with a partial repayment cheaper(I was always planning on doing this and had been saving a little every month for this purpose), as well as leave my contingency fund untouched for a real emergency.

Does my thinking make sense? I could also shorten the term of the new loan to make the new repayments the same as what I pay now, but pay it off much faster? 

I think this is one of the ways people get sucked into the millstone of ongoing debt situations 

Really you should be paying this loan off and not using your credit card at all. i hope the words "as sensibly as possible" indicate that you're clearing the balance in full every month, avoiding interest.... And you don't carry a balance from one month to the next.

I wouldn't take out this extra borrowing, I'd focus on paying down the existing loan more quickly.

kimwp

How would you have paid it off with a partial repayment?

Altior

Moving to 6.5% is certainly superior to staying on 11.9%, if you have no other way of reducing the liability. If it takes adding £1K to the capital balance, I don't mind that. However, are you absolutely sure that the entire loan will have the rate set to the new rate. And you won't have multiple rates being applied on different balances? 

Grumpy_chap

NotARealName123 said:

, the remaining balance is £9.5k

I am considering leaving the emergency fund intact, and taking the minimum extra amount (£1000) which would reset my loan to £10,800 and add 18 months back on to it, but drop the interest rate to 6.5% and lower the monthly repayments by £50. 

That doesn't add up.
£9.5k plus £1k is not £10.8k

IF taking the increased borrowing reduces the interest rate on the whole, then take the additional borrowing and very quickly make a repayment to bring the amount owed back to where it started.  Then keep the monthly payments as they are and use the reduced interest rate to reduce the term and total amount paid.

Remember, the lender only made this offer because they expect to make more money out of you by your acceptance.

Altior

Early repayment charges could be the variance (if the original loan is actually being cleared down).

ManyWays

Can you ask them what the cost would be to keep the term the same or only extend by 6 months? 

Nasqueron

While it could reduce payments by £50, why not keep paying that money that you already budgeted to not have and clear it sooner?

NotARealName123

Emmia said:

NotARealName123 said:

Just under 2 years ago, I applied and got my first ever loan for £13.5k from NatWest, at 11.9%.

After making consistent repayments(And managing a credit card as sensibly as possible) my credit rating has risen, the remaining balance is £9.5k and now NatWest are sending me adverts asking if I want to borrow more. 

I've had some unexpected bills this month, but I do have an emergency fund. However, I am considering leaving the emergency fund intact, and taking the minimum extra amount (£1000) which would reset my loan to £10,800 and add 18 months back on to it, but drop the interest rate to 6.5% and lower the monthly repayments by £50. This would also cover all the bills and leave me able to focus on saving for another lump repayment.

My thoughts are that this would make paying it off with a partial repayment cheaper(I was always planning on doing this and had been saving a little every month for this purpose), as well as leave my contingency fund untouched for a real emergency.

Does my thinking make sense? I could also shorten the term of the new loan to make the new repayments the same as what I pay now, but pay it off much faster? 

I think this is one of the ways people get sucked into the millstone of ongoing debt situations 

Really you should be paying this loan off and not using your credit card at all. i hope the words "as sensibly as possible" indicate that you're clearing the balance in full every month, avoiding interest.... And you don't carry a balance from one month to the next.

I wouldn't take out this extra borrowing, I'd focus on paying down the existing loan more quickly.

I use around 3-5% of my credit card limit every month and always repay in full.

Grumpy_chap said:

NotARealName123 said:

, the remaining balance is £9.5k

I am considering leaving the emergency fund intact, and taking the minimum extra amount (£1000) which would reset my loan to £10,800 and add 18 months back on to it, but drop the interest rate to 6.5% and lower the monthly repayments by £50. 

That doesn't add up.
£9.5k plus £1k is not £10.8k

IF taking the increased borrowing reduces the interest rate on the whole, then take the additional borrowing and very quickly make a repayment to bring the amount owed back to where it started.  Then keep the monthly payments as they are and use the reduced interest rate to reduce the term and total amount paid.

Remember, the lender only made this offer because they expect to make more money out of you by your acceptance.

Apologies, I should have clarified. This would replace the existing loan with a larger one, so they include an early repayment charge which is why it's slightly more.

I did end up ruminating last night that if I kept the repayments the same, I might be able to take the extra money, reduce the interest rate *and* shorten the term. I'll keep poking around with the quote menu to see what options I am eligible for.

NotARealName123

kimwp said:

How would you have paid it off with a partial repayment?

I'd already been saving a little every month with the aim of reducing the term of the loan, as the interest accruing was until very recently around 1/3rd the value of the repayments and I found that repulsive! 

Sorry, I'm not sure I'm fully grasping your question. It wouldn't pay the whole loan off, but it would have taken a chunk out of the loan term.