Amex L.O.B. better than a loan?

Flashfly

I've done a quick search and can't find a specific answer to my query. Here goes-

I currently have about £10'000 stoozed in savings from 0% cards. I have the amount in savings that I need to pay back the cards.

I am planning on a change of career and need a loan to pay for the training. I've been looking at the Amex Platinum 4.9% Life Of Balance card and it's interest rate seems cheaper than any loan. Can I directly compare a Credit Card APR with that of a loan?

Would it be wise for me to apply for this card and spend my stooze pot rather than getting the money I need from a personal loan?

johnsmith_4

Flashfly wrote:

I've done a quick search and can't find a specific answer to my query. Here goes-

I currently have about £10'000 stoozed in savings from 0% cards. I have the amount in savings that I need to pay back the cards.

I am planning on a change of career and need a loan to pay for the training. I've been looking at the Amex Platinum 4.9% Life Of Balance card and it's interest rate seems cheaper than any loan. Can I directly compare a Credit Card APR with that of a loan?

Would it be wise for me to apply for this card and spend my stooze pot rather than getting the money I need from a personal loan?

The minimum payment on the Amex card could be higher than the repayment on a 5 year loan. I depends how much you are borrowing but the interest will be cheaper at 4.9%.

dc

IMHO L.O.B. offers are better than loans because the interest paid drops as the balance falls. You also have the luxury of keeping payments low in times of need, and paying more if it suits,especially towards the end to let you take advantage of other offers. The minimum payment can become important with large amounts, I think it is 3% with Amex.

With a loan the interest is usually simple interest, ie say £10k at 10% will give £11K to pay off in one year and add £1K for each year then divide by number of years to get monthly payment. in one year it would cost £1k + any arrangement fee and payments would be £917 a month.
With the credit card lobs the interest is compound ie calculated each month on a daily basis, so imho the interest paid back in total would be equivelant to a loan of roughly half the quoted APR.say the loan was again £10k, the apr say12%, the interest for the 1st month would be £100, so you owe £10,100, then if you paid £1000 a month, the second months interest would be 1% of the balance, £91, third £82ish, fourth £73ish,fifth £63ish, sixth £54, seventh £45ish, eighth £35, ninth £25ish, tenth £16ish, eleventh £6ish after having paid off remaining£580 ish giving a total interest paid of less than £600 (£589 total of monthly ishes.). So 12% LOB At least £400 cheaper than the 10% fixed rate loan.

Disclaimer For the lurking pedants of this site.

I KNOW THAT THIS IS NOT A TRUE COMPARISON BUT ILLUSTRATES SAVING AND PROVES THAT 12% lob APR IS AROUND A 6% aer

HTHs dc

Flashfly

dc,

Thanks for a great post. Your illustration really helped me understand the two arrangements.

As you say the minimum payment will have to be considered. I was thinking that if I managed to get £10k on a LOB offer and the minimum payment was 3% then this would mean the monthly payment would be approx £300. During training I would not be earning so would have to ensure that out of the £10k a certain amount ws stashed away to make the monthly repayments.

This would obviously reduce the amount I could put towards my training, but still seems a better deal than any loan.

Please someone shout if I have got my thinking all wrong.

dc

Beware, I may be wrong but Amex tend to have lower credit limits, you may only get £3k, good luck.

Flashfly

dc wrote:

Beware, I may be wrong but Amex tend to have lower credit limits, you may only get £3k, good luck.

Yeah I have seen others talk about low limits. I better not pin all my hopes on it!

JohalaReewi

Also, because you are using the Amex card for the LOB rate and not spending on it, you are likely to be charged an annual £15 admin fee. On the plus side, there are no early exit penalties so you can settle up when you like (or BT to another card). The only requirement is to keep up the minimum payments.

My credit limit started at £4k but you can always ask customer services for an increase. Beware the minimum salary requirement for the platinum card.

lipidicman

dc wrote:

With a loan the interest is usually simple interest,

Most loans I see quote the APR. What sort of loans are you talking about? I heard that car loans can be promoted the way you say. Surely everyone knows about APR nowadays?

Flashfly

Thanks for all the advice guys. I am going to hand on until the new year to see if any new LOB offers become available.

Am I correct in assuming card issuers release new products after Christmas?

dc

lipidicman wrote:

Most loans I see quote the APR. What sort of loans are you talking about? I heard that car loans can be promoted the way you say. Surely everyone knows about APR nowadays?

Simple interest and compound interest are "old" expressions in how the actual amount/cost of borrowing, is/was calculated. Which I prefer to the terms like APR.
APR seems to be being replaced by AER, because of confusion. Then suddenly there is a new term the "Total Charge for Credit" In my opinion the actual total cost is more important to the borrower.

Simple interest is when the cost of borrowing is calculated by not taking into account any of your payments in the years you borrow. So if you borrow £100 for three years at 10%, the interest will be £30, therefore you will have to pay back £130 over that period. eg in as you say car loans.
Compound interest is when payments are taken into account and are therefore cheaper, ie interest is calculated regularly, say on a daily or monthly rate, like overdrafts or credit cards
.

lipidicman

I know what simple interest is. My point was that I don't see many products advertised that way and I was saying that most people would compare APRs.

To say that compound interest is cheaper is not necessarily true. It depends on the effect of your payments being larger than the effect of the 'interest upon interest' as anyone who has made 'minimum payments' to credit cards will testify!