How to borrow at low cost for someone currently debt-free?
Discussion
I managed to clear the mortgage during 2020 and have no other borrowing. Income is well above average, modest outgoings, high job security and substantial savings (albeit not in cash). My only current line of credit is a £13k limit on a credit card, which is settled every month.
In the last few months, I've been watching my credit score decline quite rapidly. I assume this is to do with having no current debt and I'm beginning to get a little concerned about it...
I've recently ordered a car that should arrive in about 6 months' time, at a cost of ~£29k. The price is dependent on taking a PCP, which I had intended to settle immediately through a combination of sale of current car, cash and possibly a loan of ~£15k.
Unfortunately, I tried a past lender this morning and was offered an APR of ~19%! This is a big shock for me, given my backdrop and some past borrowing at <3%. At worst, I guess I'd need to either accept the terms of the manufacturer's PCP (6.4%) and / or look to liquidate some longer term savings.
In the meantime, is there anything I should (not) be doing to improve my prospects of being offered a ~3% loan? I'm mindful of not applying to lots of different people for loans.
In the last few months, I've been watching my credit score decline quite rapidly. I assume this is to do with having no current debt and I'm beginning to get a little concerned about it...
I've recently ordered a car that should arrive in about 6 months' time, at a cost of ~£29k. The price is dependent on taking a PCP, which I had intended to settle immediately through a combination of sale of current car, cash and possibly a loan of ~£15k.
Unfortunately, I tried a past lender this morning and was offered an APR of ~19%! This is a big shock for me, given my backdrop and some past borrowing at <3%. At worst, I guess I'd need to either accept the terms of the manufacturer's PCP (6.4%) and / or look to liquidate some longer term savings.
In the meantime, is there anything I should (not) be doing to improve my prospects of being offered a ~3% loan? I'm mindful of not applying to lots of different people for loans.
It's quite possible the lender simply doesn't want to lend at the minute. Did you repay your mortgage early?
Have you tried one of the generic search companies like Moneysavingexpert (who I believe can run a check without leaving a mark on your credit score), Moneysupermarket etc to see what rates you can get?
If these all come back with higher rates, the circumstances you report don't quite add up.. Worth looking into your credit report in a little more detail to see if there's anything untoward, and possible reducing your £13k credit limit as this won't actually work in your favour
Edit: I just used the MSE checker (soft search) and Nationwide came back with a 2.9% loan 'guaranteed' (sort results by APR). Sainsburys is similar but isn't guaranteed.
I have a outgoings of a mortgage and childcare with a credit card limit of <£10k which I clear every month. So something's seriously up if you aren't eligible!
Have you tried one of the generic search companies like Moneysavingexpert (who I believe can run a check without leaving a mark on your credit score), Moneysupermarket etc to see what rates you can get?
If these all come back with higher rates, the circumstances you report don't quite add up.. Worth looking into your credit report in a little more detail to see if there's anything untoward, and possible reducing your £13k credit limit as this won't actually work in your favour
Edit: I just used the MSE checker (soft search) and Nationwide came back with a 2.9% loan 'guaranteed' (sort results by APR). Sainsburys is similar but isn't guaranteed.
I have a outgoings of a mortgage and childcare with a credit card limit of <£10k which I clear every month. So something's seriously up if you aren't eligible!
Edited by B9 on Thursday 11th March 10:24
Thanks.
I am using a credit file checker (MSE) and it just happened that the most competitive quote was from a former lender. I guess they just don't want my custom again, possibly as I have settled very early twice with them - as I intend to do so again.
Of more general concern is how the number of lenders offering me ~3% seems to be reducing month to month. There nothing untoward in my history or searches, though my bank doesn't sign up to Open Banking which I guess might be hindering some automated search assessments.
I am using a credit file checker (MSE) and it just happened that the most competitive quote was from a former lender. I guess they just don't want my custom again, possibly as I have settled very early twice with them - as I intend to do so again.
Of more general concern is how the number of lenders offering me ~3% seems to be reducing month to month. There nothing untoward in my history or searches, though my bank doesn't sign up to Open Banking which I guess might be hindering some automated search assessments.
There are only a handful of lenders who offer < 5%.
Forgive me if I've misunderstood your response, but if you'd already seen the same quotes from MSE (2.8%, 2.9%) then I'm not really sure on the purpose f this post? Are you saying you've already been with the two I mentioned who now don't want to do business with you (which will be because you repaid early)
Forgive me if I've misunderstood your response, but if you'd already seen the same quotes from MSE (2.8%, 2.9%) then I'm not really sure on the purpose f this post? Are you saying you've already been with the two I mentioned who now don't want to do business with you (which will be because you repaid early)
s off the lender.I don't undertsand this 'credit score' business. Like the OP I paid my mortgage off many years ago and have never taken out a loan (well apart from buying the Mrs a Fiat in the 90s as it was interest free credit). I went on Experian out of interest years ago and recently where my 'score' never changes from 999 ?
I remember the credit card company once deciding to reduce my overall limit on the pretext "It will improve your credit score" even though I pay it off every month.
Like others have said if you can find the money elsewhere use your own rather than pay to use somebody elses.
I remember the credit card company once deciding to reduce my overall limit on the pretext "It will improve your credit score" even though I pay it off every month.
Like others have said if you can find the money elsewhere use your own rather than pay to use somebody elses.
Muzzer79 said:
Curious as to why you would pay off your mortgage, which must have a very low interest rate, and then take out finance for a car, which will always have a higher interest rate?
Why would you not leave £15k on the mortgage and use that money to buy the car?
This! Mortgage will be the cheapest debt you can get so makes sense to mortgage the house and use that to buy the car, not the other way around. In fact, at current interest rates, I'd be inclined to mortgage a lot more out of your house and put that in investments too Why would you not leave £15k on the mortgage and use that money to buy the car?
The Cardinal said:
I managed to clear the mortgage during 2020 and have no other borrowing. Income is well above average, modest outgoings, high job security and substantial savings (albeit not in cash). My only current line of credit is a £13k limit on a credit card, which is settled every month.
In the last few months, I've been watching my credit score decline quite rapidly. I assume this is to do with having no current debt and I'm beginning to get a little concerned about it...
I'm not sure why your rating is declining if you use the credit card. I haven't had a mortgage since 2015, and no other debt for a lot longer than that. All our monthly expenses go on a credit card, and I pay it in full each month, just like you.In the last few months, I've been watching my credit score decline quite rapidly. I assume this is to do with having no current debt and I'm beginning to get a little concerned about it...
Prompted by another thread on here about a week ago, I checked my Experian rating, and it was 962, which I am told is pretty good. I'm also told it's because of the credit card.
In answer to some of the questions and observations...
Back when I last made borrowing arrangements in 2017, I found the market for a mortgage balance of <£20k very limited and the best rate achievable at the time was 2.9%, which was with the existing lender. I couldn't increase the borrowing at the time, so one of my past cars was funded via a loan, which in turn bought out a PCP. I have repeatedly settled loans early over the years.
My MSE credit file showed a score of "999" throughout the last few years, though has progressively dropped to 920 since settling the mortgage and paying off that last loan in 2020.
I'm fortunate enough to be generating cash savings at a decent rate, so a loan isn't strictly necessary - but a few building works this year and the aforementioned car purchase mean it would be helpful to investigate credit that I would intend to repay quickly, or indeed not use. Do please feel free to let me know how to do it better!
Obviously I welcome and learn from all the suggestions, but there certainly isn't any more to it than that!
Back when I last made borrowing arrangements in 2017, I found the market for a mortgage balance of <£20k very limited and the best rate achievable at the time was 2.9%, which was with the existing lender. I couldn't increase the borrowing at the time, so one of my past cars was funded via a loan, which in turn bought out a PCP. I have repeatedly settled loans early over the years.
My MSE credit file showed a score of "999" throughout the last few years, though has progressively dropped to 920 since settling the mortgage and paying off that last loan in 2020.
I'm fortunate enough to be generating cash savings at a decent rate, so a loan isn't strictly necessary - but a few building works this year and the aforementioned car purchase mean it would be helpful to investigate credit that I would intend to repay quickly, or indeed not use. Do please feel free to let me know how to do it better!
Obviously I welcome and learn from all the suggestions, but there certainly isn't any more to it than that!
When you say substantial savings, but not in cash what are you talking about?
A number of investment managers offer portfolio finance, think secured overdraft, based on an LTV and the assets under management. You’re talking interest rates in the same ballpark as mortgages, give or take.
A number of investment managers offer portfolio finance, think secured overdraft, based on an LTV and the assets under management. You’re talking interest rates in the same ballpark as mortgages, give or take.
Thanks for the suggestion - it's a bunch of funds held in ISAs, managed as part of wider family arrangements.
To be honest, I'd been hoping that I could simply press a few buttons on the internet and have a low cost credit option for later this year. I don't want to overcomplicate things! It also looks like my credit card provider offers money transfers if needs be - albeit at ~4%.
To be honest, I'd been hoping that I could simply press a few buttons on the internet and have a low cost credit option for later this year. I don't want to overcomplicate things! It also looks like my credit card provider offers money transfers if needs be - albeit at ~4%.
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