Credit Cards to pay off Loan?

frankquietly

Dear Sir´s

I currently have 4k loan outstanding (6.3% 4years). I am wondering whether I could make a saving by paying it off with 0% balance transfers?

Any Suggestions?

Frank

NickX

Only a few rather special cards have this facility (known as SBT or Super Balance Transfer)

These cards include Egg, Egg Money, Post Office Card and any card administered by MBNA (including the Virgin range of cards)

In addition MINT periodically issue Credit Card Cheques that can be paid into a Bank Account at Balance Transfer rates. However, this is the least satisfactory option because the cheques cannot be ordered and you never know when they are going to drop through your letterbox.

frankquietly

Thanks NickX

And do you think there is a good saving to be had? what about risk factor, will 0% balance transfers be around for a while?

Thankyou
Frank

NickX

frankquietly wrote: »

Thanks NickX

And do you think there is a good saving to be had? what about risk factor, will 0% balance transfers be around for a while?

Thankyou
Frank

Well with Virgin for instance you could get 0% for 15 months with a fee or around 3%. So this clearly is a saving on 6.3% that you are currently paying.

However, as I think you have alluded to, you need a plan to handle the debt once the 15 months expires (preferably a week or so before it expires). Ideally you have paid it all back, but if not you will need to look at Balance Transferring again. They is no guarantee that 0% deals will still be around in 15 months time, and Balance Transfer fees appear to be on the increase with some reports of increases to 5%.

So, there is an element of risk - perhaps if 15 months isn't long enough to clear the loan, you may be safer to stick with the fixed rate that you are currently paying.

jamesd

You could save around 130 in the first year. Very rough calculation assuming 6.3% interest on 4,000, 3% balance transfer fee that only pays for one year at 0%, not fifteen months. The saving is worth having so long as you'll be able to repay the loan or borrow the remaining balance. You should also seek to save enough money to repay the loan at the end of the free balance transfer period if possible, since your risk comes at the end of the 0% term.

0% balance transfers at an effetive interest rate below 6.3% seem likely to be around. If not, another loan will probably be an option for you.

frankquietly

Thank you for your help.

I am a little concerned I have misled you. The loan I have has a settlement figure of approx 4k, it is a 6.3% loan with 4 years remaining. I think the only way to save utilizing 0% transfers would be if some early settlement discount applies to the loan. Which I´ve recently discovered is a silly idea, in fact they punish you for paying it off early!!!

NickX

frankquietly wrote: »

I think the only way to save utilizing 0% transfers would be if some early settlement discount applies to the loan. Which I´ve recently discovered is a silly idea, in fact they punish you for paying it off early!!!

Yes, I think this answers the question for you - no point in paying punitive settlement fee to "risk" the 0% deals.

Good Luck.

YorkshireBoy

I thought the maximum penalty for early settlement these days was one month's interest? Having said that, it's been a long time since I had a loan so I could be totally wrong.

Perhaps a question for the loans board OP?

CLAPTON

frankquietly wrote: »

Thank you for your help.

I am a little concerned I have misled you. The loan I have has a settlement figure of approx 4k, it is a 6.3% loan with 4 years remaining. I think the only way to save utilizing 0% transfers would be if some early settlement discount applies to the loan. Which I´ve recently discovered is a silly idea, in fact they punish you for paying it off early!!!

bizarre

if the loan is post may 2005 then the loan and settlement figure is regulated by the cca.

what are the full details?

jamesd

frankquietly, was it a secured loan? Unsecured? For how many years did it originally last?

From 31 May 2007 all unsecured loans with initial terms less than ten years are covered by the new regulations and the greatest permitted early settlement cost is the balance owed plus two months of interest. This includes loans taken out before 31 May 2007. If you just pay the outstanding balance without asking for a settlement figure the most extra they can charge is one month of interest from the time they receive your payment.

So if they have claimed it's more than that and you asked them after 31 May 2007 the question is why they are claiming it's more costly.

frankquietly

Hello All,

Thankyou for your information. It is an unsecured egg loan taken out in 2004. I have discovered that egg do not penalise early repayment. But also I have discovered that they do not reward it either, so using 0% credit cards to pay it off would save me nothing and add another level of risk to my situation.

Am I thinking the right way?