MegaSack DRAW - This year's winner is user - rgwb
We will be in touch
So, I have recently had a prang and my car was written off. I have received the settlement from the ins co and I'm now looking to get another cheapish car - say up to £5k or so.
The insurance settlement is less than that, so I'm going to have to borrow to make up the rest. No problem with that.
However, I'm seeing massive variations in the cost of borrowing based on the amounts on comparison sites. For example, if we put up £2000 and borrowed £3000, then the interest rate is something like 7%. If we borrow £5000 then it's 3.5%. If I looked to borrow £7500 then it drops below 3%.
It appears to me the cheapest way to borrow would be to take the £5000 on a fixed rate loan with no early repayment penalties, and then the day after pay back the cash we have from the insurance, leaving a balance that it much lower than we wanted but at the lower rate.
It seems to be to be too obvious, but what is the flaw? I mean, if the lenders have a clause which says they can recalculate the interest based on the outstanding loan, that might cause problems but I'd have thought that is a pretty consumer unfriendly term if there was...
I did this in the past for my MSc loan.
Instead of paying it back on the stupid 9.9% 'Career Development Loan' from Barclays, I took out a 2.8% loan from M&S over 3 years but borrowed an additional £2,500 to reduce the interest by 1%.
I ended up paying it all off in 6 months with no penalty.
I'd just double check the small print, but none of the providers I checked had early settlement fees.
Edit: [url= http://bank.marksandspencer.com/personal-loans/landing/ppc/?WT.mc_id=MASM_MSBank_PPC_Brand_PersonalLoans_DR_Google_33&WT.srch=1 ]M&S still offering 2.8% on £7.5-15k[/url]. That's probably the cheapest option, by setting aside the additional borrowed and overpaying (either lump at beginning or end, or spread).
Zero percent credit card. I got one recently for 28 months with a £10k credit limit 😯 Only want to use £2k ish which I can pay back within 2 years with no interest.
Even if I had to transfer a smaller balance to a new 0% card later the small fee would be way less than the interest on a loan.
Yeah the problem with sub-5k loans is that the fixed cost to the bank is the same as a 30K load so the interest rate jumps up a bit (plus there's some evidence to suggest smaller loans have a higher rate of default).
Zopa would be a good starting point.
As above - credit card with cash transfer.
My virgin card was 0% for 30 something months, and a 1.7% fee. Set up SO for minimum payments, and pay the rest off as and whenever.
( I've got the cash to pay mine off in a savings account accruing interest...!)
Edit: examples here: https://uk.virginmoney.com/virgin/credit-cards/money-transfer-cards/#all-round-card
NJee to the forum! 🙂
Out of curiosity, what's in it for the banks offering these 0% cards over such long periods? Presumably people savvy enough to use the cards would also be savvy enough to pay off in full prior to charges. The bank meanwhile, is degrading their cash by 2%+ annually!
I think you are overestimating people. I'm sure enough don't pay it back to make it worth while especially given the crazy rates once the deal endsPresumably people savvy enough to use the cards would also be savvy enough to pay off in full prior to charges
Forget interest rates, they're irrelevant. All that matters is how much you actually pay in interest over the term of the loan and minimising that. That may mean taking an option with a higher rate if the period is less for example.
Out of curiosity, what's in it for the banks offering these 0% cards over such long periods?
Because they are not actually free and there are costs associated with them. You pay 3 - 5% of the value as a fee. Also they rely on people keeping track of the periods and inevitably some will forget and let the debt roll over onto the full 15% - 20% rates for a time, so I'm sure the banks earn a pretty penny out of them. They are actually a very effective and cheap way of borrowing money, but you have to be organised and manage it well to avoid large charges.
I borrowed £3K from Ratesetter @ about 3% a couple of years ago. Peer to Peer lending , no banks involved.
I d go p2p, or cut out zopa and borrow it from someone on here
Because they are not actually free and there are costs associated with them. You pay 3 - 5% of the value as a fee.
Only if you transfer a balance to one. I got two to help renovate my house and have spent on them but don't intend to transfer to another card within the time limit - the one I got was 28 months 0% on new purchases....
Because they are not actually free and there are costs associated with them. You pay 3 - 5% of the value as a fee.
Personally prefer to shop around for the best transfer rate, currently 0%. Which is nice 🙂