Repaying a loan vs Savings

Little_Miss_Muffet_2

I took out a 8 000 loan with my bank last year in January for three years.
I pay back 265 a month and the interest rate is 10.52APR. It works out to be about 130 pounds in interest per month I think.To cut a long story short my loan expires in February 2010 so I have roughly one year 9 months left to pay. I have an outstanding balance of about 5500. The penalty for early repayment is a full months interest which will bring the total figure repayable if I settle the loan now to about 5630. I have now got savings of about 6000 pounds which I was planning to use as a deposit to buy a house. Someone has suggested that I am better off paying my loan with my savings and then saving again for a mortgage deposit or getting another loan for my mortgage deposit. Is this wise? should I pay off the loan now. It would mean I have to delay agetting on the property ladder plus with the current credit crunch am not sure that if I do apply for another loan will be able to get a cheaper/same rate. Please help before I do the wrong thing cause im actually thinking of paying off the loan this week.

foxwales

Pay off your loan.

You will have more money each month to save; plus your not paying the extra in interest.

If you then start to save again for a house deposit; hopefully this so called "Credit Crunch" will have blown over and you can get yourself a decent mortgage rate and maybe a nice house for a reasonable price.

It would only be worthwile saving your 6k if you had a savings interest that was acutally higher than your loan interest.

LilacPixie

Personally I would pay off the loan and then start saving again using your £265 monthly payment plus whatever income you used to save 6k anyway.

At the moment half decent mortgages are hard to get. First time buyers are needing 25% deposits and house prices seem to be on the decline in most areas.

Rafter

Agree,

You will more than likely lose your £6k deposit if house prices fall by 15% over the next couple of years as expected.

Much better off to repay your loan, set yourself up with a regular savings account and save a much bigger deposit, so that you don't start your home owning life with a big loan or a very uncompetitive mortgage rate.

R.