clear loan or credit card first?

zenith1820

Hi All

I have £7000 cash given to me and now have the option to clear either a £6000 natwest loan (6.9% apr for 5 years) or the alliance and leister credit card of £7000 (6.9% apr until march - it was to be 0% apr until then but I forgot to make a payment and they charged me a late fee and changed the apr to 6.9 instead)

If I pay off the natwest loan that will mean I can make additional payment or balance transfer to another card with the a&l card (not sure if I will get credit limit anything close to £7000 though)

any ideas?
thanks

Limes

Credit Card!! That should save you at least £140 per month and if you're likely to forget another payment should stop you incurring penalties. Also after your introductory offer expires I'm assuming that the APR on the card jumps up to A&L's standard 16.9% whereas the loan remains at 6.9%. The loan probably comes out as a direct debit payment and is a known quantity in your budgetting anyway.

The credit card is also the bigger debt and you'll feel a whole lot better getting rid of the mountain rather than the comparative molehill of the loan.

I was in a similar situation recently and decided the Credit card must go first without relying on shifting to new 0% cards. I now have about £200 extra to deal with other debts (still have a loan and overdrafts and after 5 years out of uni will be starting to pay back my student loan from next April) and make living just that little bit more comfortable.

Always get rid of the card first would be my advice!!!!

daveboy

You may well be aware of this, but some loans penalise you for paying early, you really need to go back and look at the terms and conditions.

Some people have discovered that, say in your example, with your Natwest loan of £6000 (assuming you still have that to pay), they pay them a sum of £5900, and then make a final payment of £100.

The penalty will then be based on the £100, rather than the full amount, and can save you a considerable amount of money.

Having never borrowed from either A&L or Natwest I am not sure whether this would work, others may be able to help more.

Personally, I'd be looking at the credit card, as you could be paying it off at 6.9% for quite a while. At least the loan has a fixed period. A lot would depend, for me at least, on your personal circumstances, and what other income you have to put towards repayments.

I know if I had £7000 on a card, I would be paying it off for a very long time and would want to get rid of it.

southernscouser

It depends on whether you can make extra payments on your loan and whether/how much you will be penalised. If you CAN'T make extra payments I would pay the loan off in full and accept the charge they put on it. If I COULD overpay on the loan then I would pay the credit card off.

J_P_S

i would def check the t&c's on the loan first.

it may be possible to clear some of it without being penalised, if not clear the card.

the loan company may allow you to renegotiate your payments once you can afford more ( i assume you will be able to once you clear some using this cash) and you may be able to clear that quicker then also