Age old question, credit card or overdraft?

jimpix12

Hi all, any advice appreciated, as I don't really know what is best. I'm looking to buy a new car in a month's time. I have a current p/ex worth around £4500 - £5000.

The total cost to buy the car will be, with lots of haggling, £15,000. So take the cost of the p/ex off and I need to find around £10,000.

I've applied, and been accepted for a £6000 loan @ 11.9% APR. Still waiting for the cheque. So that leaves £4000 left to find.

I can pay around £2000 as a deposit, but I don't know the best option for getting the remaining £2000. My paycheck will cover other costs and I like to keep a few thousand in my bank account at all times anyway, so either it's going to be my credit card (Halifax X 0%) or my (£4000) overdraft for paying this £2000 off now.

If I take the £2000 out on my credit card, I'll be able to clear that off within at MOST 2 months. The thing is, I've always paid off the full amount every month, so will this affect my credit report if I only pay off, say, £1000 in month 1, £1000 in month 2? Or, if I did it the other way, and used my overdraft, would that be a safer approach? I will be paying money in at least once a month and was told this then would be fine. My auth o/d rate is 2% EAR.

Or, do you think I should just wait a few more months? My first payment on the loan isn't due until June anyway. My annual gross income is about £30k. Any advice appreciated. :money:

Edit: For anyone interested, the reason for the rate of 11.9% APR on my loan, is because I'm self-employed and 21, so I guess was deemed a high risk, but my credit score with Experian is 970-odd, and I borrowed a similar amount >3 years ago at 9.9% APR when I was 18. It's ridiculous.

Rafter

Hi,

Sounds like you are on the right track - just try to minimise the interest you are paying.

Not paying a card in full has no impact on your credit report as long as you are making minimum payments on time, although the amount you are borrowing will show up, so until you have paid the card off your total borrowings will be higher, obviously.

You have done pretty well to get that loan at that rate given you are self employed.

Suggest you use the card if you can access the 0% part, otherwise your overdraft short term might be cheaper - particularly if there are fees on the card.

30k salary at 21! Well done!

R.

jimpix12

Hi, thanks for your reply and help!

I guess I will go down that route then, although the thought of using a credit card for a purchase about £500 scares the hell out of me! :eek:

Is there any easy way I can figure out what the min. repayments will be, how are these calculated or are they fixed?

jimpix12

Hmm, since posting the above, I've done a lot more research into the subject matter. A question: if I only make the minimum payment on the card (which I don't intend nor hope to do), as it's £5, won't I theoretically never pay this off? A £5 a month payment on a £2000 (approx) debt will take years to pay off, and then there's the interest - it surely will only increase and increase? Can someone explain? (purely out of, ahem, interest)

AHAR

The minimum payment will be £5 or a percentage of the remaining balance - whichever is higher?
Making minimum payments will reduce the balance very slowly over a long period and will make lots of money for the CC company.