New Cheapest Loan

Been on MS and they have pointed out that this is the cheapest APR at 5.7% on a £4k loan, now been on the website and there is no infomation there at all, can anyone shed any light on this.

Thanks

I have read Martin's article and he says Barclays is the cheapest loan rate at 5.7%. However I have been shopping around and am confused (doesn't take much!).

I want £4500 over 3 yrs, unsecured, no protection.

Nationwide at 6.7% APR comes out at £137.93/month whereas Tesco at 12.9% !! comes out at £149.75.

My confusion is the difference in % rate - if they're both APR why is there such a small difference in monthly repayment between 6.7% and 12.9% - am I missing something here? Why is it so difficult to get a straight comparison?

Also British Gas is offering 1.something% monthly rate with a repayment of £158-ish per month (the idea is that the balance reduces monthly and so you pay less interest). Does this equate to 12.something% APR?

why is money so confusing?

All help gratefully received!!

Doesn't sound like much does it, but £12 a month difference amounts to £432 additional interest over 3 years.

A 'simple' but not 100% accurate way of looking at it is as follows....

You are borrowing £4500 over 3 years 36 installments.

Because you are paying the loan off at an average of £125 a month (4500/36) the amount you are borrowing is always reducing. The 'average amount you are borrowing over the life of the loan is £2250 (£4500 at start/2)

Interest on £2250 at 6.7% APR is £151 per year or £12.50 per month (£452 over 3 years)

Interest on £2250 at 12.9% APR is £290 per year or £24.20 per month (£871 over 3 years)

So the difference in monthly payment is explained by the difference in interest and adds up to a big sum of money over 3 years.

So the APR of 6.7% and 12.9% relates to the interest of around £450 and £870, so nearly 2x as much interest in total on the second loan.

1% per month works out at 12.68% APR because of the effect of compounding. If you borrow £1000 in month one and pay 1% monthly interest at the end of month one you will owe £1010. In month 2, you pay interest on £1010 at 1% which is £10.10. If you repeat that for 12 months you will end up owing £1268. Hence 1% per month = 12.68% APR.

Therefore you should always go for the lowest APR but also look out for any nasty penalties such as early repayment fees or payment protection insurance (which can double the cost of your loan).

Good luck.

R.

Thanks to Rafter - am re-reading your reply on a daily basis until it sinks in!!

Xbigman - had already decided to do just what you suggest, after listening to Martin on the radio talking about something completely different, but then put 2 and 2 together and thought "Sainsbury's credit card followed by Texaco!". Have applied but am still awaiting Sainsburys reply with the credit limit.

this is such a useful website, thanks to alls concerned!!