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Better to take loan then pay cash upfront??
scholesy69
Posts: 17 Forumite
in Loans
Hi,
I have a head for maths but cant get my head round this one.....
Have just purchased a kitchen for 5k and at the moment we on a finaince plan with GE as we got more discount then paying upfront in cash. Anyway there is only a 1 month penalty for paying it of early (about £100) but the APR is high (about 20% APR).
My plan is to take out a loan of 5k at 6.9% APR (total repayable is £5486.16 over 3 years, £152.39 a month). I ahve calculated that if we keep our money in an ISA at 5% APR then over 3 years we get the following interest
Savings 5000
Year 1 5250
Year 2 5512.5
Year 3 5788.12
which means even including the £100 early repayment charge from the original loan we still only pay back £586.16 and have gained £788.12 from savings, leaving us with a profit of £201.96 and having the advantage of keeping our savings incase we desperately needed them.
I think I am missing something here......... Please help
( I thought originally that we would be paying the difference of the 2 interes rates, ie 1.9% in interest to the loan company but they say that the total repayment is only £5486.16)
Cheers
Scholesy
I have a head for maths but cant get my head round this one.....
Have just purchased a kitchen for 5k and at the moment we on a finaince plan with GE as we got more discount then paying upfront in cash. Anyway there is only a 1 month penalty for paying it of early (about £100) but the APR is high (about 20% APR).
My plan is to take out a loan of 5k at 6.9% APR (total repayable is £5486.16 over 3 years, £152.39 a month). I ahve calculated that if we keep our money in an ISA at 5% APR then over 3 years we get the following interest
Savings 5000
Year 1 5250
Year 2 5512.5
Year 3 5788.12
which means even including the £100 early repayment charge from the original loan we still only pay back £586.16 and have gained £788.12 from savings, leaving us with a profit of £201.96 and having the advantage of keeping our savings incase we desperately needed them.
I think I am missing something here......... Please help
( I thought originally that we would be paying the difference of the 2 interes rates, ie 1.9% in interest to the loan company but they say that the total repayment is only £5486.16)
Cheers
Scholesy
0
Comments
-
You 'flaw' is about repayments. Where do they come from? If from ISA, your ISA interest will be much less than £788 - about 1/2 of this amount in fact. If the repayments come from income, then you lose potential interest that you could have earned by saving this money into ISA, for example. Again this loss is about 1/2 of £788.0
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be very careful with GE. see my post elsewhere on this forum regarding length of agreement. GE not mentioned, but there ya go, they are now! (then trading under they're 'F.N.' banner).0
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Could'nt you just get a LOB credit card and pay off early saving extra interest payments?0
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