Consolidating loans-any disadvantages?

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suntot

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Hi all,

I hope you can offer some advice on this. I am about to start paying a mortgage on a joint property with my partner, this will work out around €800 a month each. I am considering consolidating two other loans I have to make repayments more manageable.
I have car finance over 4 years at 7%, I'm a year into this and the closing balance would be €11,000. I also have a 4 year credit union loan @ 6.95% and closing balance at the moment would be €13,000. At the moment my repayments on the two loans come to nearly €700. Im hoping to consolidate the amount by borrowing the total amount off the credit union to bring the repayment down to €500. By doing this am I paying two lots of interest? Would I be better trying to get on with it and keep paying what I am paying now? Or are there any other options Im missing out on?
Any advice would be much appreciated.
 
The key differences are the rates applicable, the term of the debt and the total interest paid. On a very quick and dirty calculation, the interest payable over the remaining term of the car loan is about 1.6k and about 1.9k on the credit union loan. So in terms of consolidating, makes sense to do so at a lower rate but check the term you put it over. If you put the 24k over 10 years at 4%, the interest bill would be about 5k so it doesnt make sense in that circumstance. Also, if you include it in the mortgage, you cant claim interest relief on the 24k and also, some banks aren't too keen with refinancing short term debt into long term for what they consider 'living' expenses. In short, check your total interest calculated figure over various terms, at the various rates to make your decision.
 
One fairly simple indicator of how much you will save is to work out how much you will pay on the car finance for the next four years if you continue it then if the credit union has a loan calculator check out how much you will pay monthly over four years if you borrow the money to settle and compare. You should i think get an interest rebate on the car finance so the settlement figure should include this. Also if your credit union offers special interest rate car loans - might be worth checking if you can get the interest at that rate to pay off car finance.
 
Bottom line - crunch the numbers to compare the overall cost of different ways of managing the same amount of debt.
 
As the whole idea of consolidaing the loans is to make the monthly payments more managable (you'll be paying less off each loan) the overall cost will be higher (more interest due to longer term).

Its then your decission as to how much you can afford to pay off (the more you pay the less you'll lose in the long term) and how much you'll need to reduce current payments to have enough spending money month to month.
 
Satanta said:
As the whole idea of consolidaing the loans is to make the monthly payments more managable (you'll be paying less off each loan) the overall cost will be higher (more interest due to longer term).
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Not if higher cost unsecured loans are consolidated onto a mortgage and paid off over a similar term rather than the full mortgage term (e.g. a number of years rather than decades). In that case the monthly cost and the overall cost should both be lower.

It makes no sense to pay for something like a kitchen, car, holiday etc. over the several decades that many mortgages run for!
 
note if you include in your mortgage non house improvement costs e.g. car loan, this will effect in TRS interest deductability, i.e. you cannot get tax interest relief on that portion of your mortgage repayments that relate to a car loan
 
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