Loan to pay off credit card

Shoeless · 18 March 2018 at 3:42PM

I have a credit card that I am paying off and most months I am paying off more than the minimum amount which is, as far as I can work out, is good.

Now, I was thinking of getting a NatWest bank loan (and I have tested their loan application and I am likely to be accepted) to get a loan to pay off the credit card with a lower APR plus to get some stuff that I need. The total for this would be around £2,500.

The amount of APR for this amount would be rather high (about 16%) but if I took out a £5k loan for the same period of time (3 years) the APR drops to around 7%, which is less than half of that of the smaller loan.

Is it wise to take the full loan and then use half of the loan to immediately repay a chunk of the loan and then carry on paying off the rest of the loan on the reduced interest rate? Or is this 'breaking the rules'?

I have looked on the (not very useful) Help pages on the NatWest site and can't see anything regarding this matter. So, I have registered here to ask the panel what they consider. Is this a good idea, a bad idea or simply just not permitted?

Shoeless.

Dobbibill · 18 March 2018 at 3:55PM

First question has to be 'what is the stuff you really need'?

Moving debt is not paying it off.

Why not use the amount you would pay the loan to pay more to the credit card and clear sooner - then use the same amount to save what you 'need'.

When searching for 'overpaying a personal loan' on the NW website this seems to return everything about overpaying a mortgage so you would need to check whether it's allowed. If it's not, it foils your plan somewhat.

Shoeless · 18 March 2018 at 4:04PM

The stuff that I really need is, just that, stuff that I really need. It's nothing frivilous or anything like that but just something that's needed to be purchased and works out at around £1000.

According to the loan calculations it seems that if I get the reduced APR with the £5k loan then the monthly cost that pays off the credit card, the item that is required and to repay half of the loan (i.e. just over £100 a month) is about what I am paying for at the moment with the credit card.

If most of the cost of the loan is the actual principle and not the interest then it will be easier for me to repay off the credit card if I constantly overpay.

But what I can't work out from the NatWest site is that am I permitted to get a £5k loan at 7% APR for three years and repay £2500 back on Day One, because that carries half the APR of a £2500 loan?

And either way: I am paying off the debt, either the credit card that I have now or the future loan, faster than the time interval arranged for.

John-K_3 · 18 March 2018 at 4:37PM

Shoeless wrote: »

Now, I was thinking of getting a NatWest bank loan (and I have tested their loan application and I am likely to be accepted) to get a loan to pay off the credit card with a lower APR plus to get some stuff that I need. The total for this would be around £2,500.

That sets alarm bells ringing. Significant debt that you are struggling to pay off while you are unable to afford things that you need. You sound to be overstretched, and rather than getting out of debt, you are getting into more of it just to keep your head above water.

You need to look at why you cannot life within your means, which you can clearly not. Why are you spending more than you earn, and how will you fix it?

John-K_3 · 18 March 2018 at 4:40PM

Shoeless wrote: »

And either way: I am paying off the debt, either the credit card that I have now or the future loan, faster than the time interval arranged for.

You are only managing that because you are going without things that you need. Your indebtedness is increasing, this is not a sign that you are in control.

You say that you are paying off the card and will pay off the loan quicker than agreed, but can you not see that this is meaning,was if you keep needing to borrow more?

What did you buy on the cards that you could not pay off in a month? What are you needing to buy now that your budget can not cover?

Shoeless · 18 March 2018 at 5:00PM

What did I buy on the cards? Groceries and the like when a family member was ill and I was looking after them full time and unable to work. I am now back working again and I am paying off my debts. Life isn't easy when a family member is disabled, but is classed as 'fit to work' and they need full time care and I wasn't able to go out to work and to care for them full time. Now, my circumstances have changed, I am earning again and I am paying off my debts.

However, I feel that I am being drawn too much into personal details that I wouldn't rather get into right now. So excuse me if I am hesitant into giving too much away at this moment in time.

Now, something needs my attention and I need to spend £1000 on purchasing it. What it is isn't relevant but I do need it. And at the same time it would, I thought, be prudent on getting a cheaper APR loan to pay off my only debt: the credit card.

But, none of this is answering any of my initial questions: that according to my back of the fag packet calculations I can pay off this loan for about the same cost as I am paying off my credit card now and I get the essential item that I need. I just need to know if I am permitted to do this by changing to a lower APR loan and paying back half of the loan right away: will I be able to keep the lower APR if I do this?

In a nutshell. I can get a £2500 loan for three years at 'x' per month. However, I can get £5000 for three years at about fifty percent more a month but what's to stop me paying back half of it on day one and thus paying off the loan in less than half of the time and, therefore, overall to save on the interest?

[Deleted User] · 18 March 2018 at 5:40PM

You would need to read the T&C's of the loan re overpayment, it might mean not paying for the full 5 years or mean reduced payments, its hard to advice without knowing how they would treat such an overpayment.
There might be another option a new CC that offers 0% on BT and or 0% on new purchases.

Nebulous2 · 18 March 2018 at 6:00PM

Personal loans should all allow you to make overpayments. Natwest has some details here.

What you're doing is not unusual, people often come into money and pay loans off early, what is slightly unusual is that you are doing it immediately. They can charge two months interest on early repayments, but many of them only do that on full repayment, not on partial ones.

DCFC79 · 18 March 2018 at 6:15PM

Depends whether you can get the loan at 7%, Natwest might offer say 8.9%.

Im not an expert but I believe you can do what you plan to do.

System · 19 March 2018 at 12:42PM

Instead of a loan how about using a credit card balance transfer as a loan? That way you could borrow the money anywhere between 0% and around 4%. You get another card with a balance transfer on, do your £1000 spending on your existing card, transfer that and as much of the balance of your current card to the new one and et-voila, one of the cheapest loans you'll get. Either that or you get a card that allows 0% on new purchases and spend the £1000 on that.

Sncjw · 19 March 2018 at 7:37PM

Have you actually been offered the rates on applications you will only get told what rate you will get once you apply. The headline rate is only needed to be given to 51% of applicants

Loan to pay off credit card

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