Please Point Out The Catch I'm Missing!!!!

leegolf7

Hi, I am a relative newbie to the forums but you all seem to be really helpful so I will throw myself at you collective wisdom!!
Please spot the obvious catch that for the life of me I can't find.
I have been offered (by the Halifax on my Halifax One credit card) up to £6000 with a 3% arrangement fee, then 2.95%pa for the life of the balance, with no liklihood of the balance being called in unless I miss a payment or break my credit limit.
Sounds great - currently have a loan of £5500 @ 7.9% which I am thinking of paying off, or I could even afford to play around with the additional money with a mixture of ISA's/savings/ect and hopefully wait for the economic situation to improve (I hope).
any ideas would be appreciated :money:
Lee

CLAPTON

no catch as such

but
-how are you going to take advantage of the LOB... presumably you need to BT and I don't think Halifax will BT from a loan

-make sure there is nothing on the halifax card before you BT as any repayments go towards the BT and not any existing balance
-make sure you don't spend on the card until you have paid off the BT completely as again any payments will go towards the BT and not the purchases

lisyloo

ISAs are cool but remember that on any other savings (e.g. your ISAS are full) then you will need to pay either 20% or 40% tax on the interest.
So let's say you get 5% interest (unacheiveable right now but the numbers are easy), then you will only get 4% if you pay 20% tax and 3% if you are a higher rate tax payer.
So always make sure you take account of income tax (none on ISAs of course but a limit).

Paul_Herring

leegolf7 wrote: »

I have been offered (by the Halifax on my Halifax One credit card) up to £6000 with a 3% arrangement fee, then 2.95%pa for the life of the balance

On a gross simplification that's 6% in the first year on £6k (it's actually less due to the decreasing balance.)

, with no liklihood of the balance being called in unless I miss a payment or break my credit limit.

...

Sounds great - currently have a loan of £5500 @ 7.9% which I am thinking of paying off,

1) How are you going to get the money off the credit card?
2) Are there any early repayment fees on the loan?

or I could even afford to play around with the additional money with a mixture of ISA's/savings/ect and hopefully wait for the economic situation to improve (I hope).

Your savings would have to be earning in excess of 5%pa *after tax* in order to at least break even on your extra borrowed money. That's an ISA paying 5%+ or a normal savings account paying 6.25% (assuming you're a basic rate tax payer.)

any ideas would be appreciated :money:
Lee

The fact you're both paying a fee and interest on the card makes this a very poor offer IMHO. You're likely to end up losing out, or at least making very little gain for rather a lot of effort.

leegolf7

CLAPTON wrote: »

no catch as such

but
-how are you going to take advantage of the LOB... presumably you need to BT and I don't think Halifax will BT from a loan

-make sure there is nothing on the halifax card before you BT as any repayments go towards the BT and not any existing balance
-make sure you don't spend on the card until you have paid off the BT completely as again any payments will go towards the BT and not the purchases

Hi Clapton, cheers for the reply and good advice.
the card is clear, and i understand that if I were to use it, any money repaid would be against the lowest interest rate advanced on it. (9.95% normally), and any repayments would be against the original £6000 @ 2.95%, not later purchases - suppose the easiest thing would be 2 cut the card up and not use it!! I do have 2 others, both in use but always pay the balances off.
as far as the BT is concerned, it is in the form of a cc cheque. Apparently I can write one to myself, bank it, and use the money for anything I want, even leave it on deposit!!
I have until early May to get off the fence and use it, or the offer is gone.
I cant find a loan @ less that 8% at the mo and may need to replace my heating system later in the year so would have to come up with £4000 at the rush... something I wouldn't be able to do.
I can't honestly find another way of comming up with a lump of money any cheaper and dont think in the current climate, even with the base rate so low, it will be a bad decision even later in the year.
Just checked my OD rate (17.9% - from 7.5%). online savings rate (.45% - from 4.3%) current account interest rate (zero - from 2.5%). things seem to be getting a little one sided - may as well get into premium bonds!!

leegolf7

Paul_Herring wrote: »

On a gross simplification that's 6% in the first year on £6k (it's actually less due to the decreasing balance.)
...

1) How are you going to get the money off the credit card? was going to set up a standing order to make sure I didn't miss a payment. am paranoid about such things!
2) Are there any early repayment fees on the loan? - yes as always, 2 1/2 years to go on the loan, might be better to continue paying it off??
Your savings would have to be earning in excess of 5%pa *after tax* in order to at least break even on your extra borrowed money. That's an ISA paying 5%+ or a normal savings account paying 6.25% (assuming you're a basic rate tax payer.) after the 1st year or £180 arrangement fee, it would be down to 2.95% to equate to.
The fact you're both paying a fee and interest on the card makes this a very poor offer IMHO. You're likely to end up losing out, or at least making very little gain for rather a lot of effort.

you are absolutely right, but I will need a lump of money during the year (cant avoid that), short of remortgaging (has its own probs), I cant find a better alternative at the moment and am left with the possiblility I may not get such an attractive deal later in the year. I am fortunate enough to have a relatively low mortgage balance (51k). short of borrowing £25k at 2% with no arrangement fee, my only other viable option would be to take a morgage break at 5.98%/month to save up th money. do I take the plunge or keep looking? the £6000 would cost me £180 arrangement fee, then less than £15/month interest on a (hopefully) decreasing basis???

Paul_Herring

1) How are you going to get the money off the credit card?

was going to set up a standing order to make sure I didn't miss a payment. am paranoid about such things!

You misunderstand my question. How are you going to get the £6000 off the card to begin with into your bank account, not how are you planning on repaying it.

leegolf7

Sorry Paul, yes I did missunderstand (I've never been the brightest bunny)!
Halifax offer credit card cheques, you simply write one out to a creditor and the balance is then transfered to your credit card. in this instance you can write one out to yourself, in my case I would take the Halifax credit card cheque (made payable to me) and bank it with the Nationwide, direct into my current account. I am then able to make payments from my own current account, move it around online, by cheque or simply withdraw cash from the cash point. I have checked with Halifax, they aren't bothered If i deposit the money elsewhere as long as I stay within my CC limit.
However the £6000 goes straight on the halifax CC, attracts the 3% arrangement fee immediately, then 2.95%pa interest (0.2458% payable monthly) for the lifetime of the balance.
I would be a moron if I spent anything else on the card because it wouldn't get paid off until the lower interest balance was paid off in full first. If I were to break my credit limit, the entire debt could be called in!
The attraction for me is the fact that the monthly interest charge on the debt will decrease with each payment made, but if a savings account popped up in 12 months time and I haddn't spent all the money, I could possibly transfer the remaining money into it and make minimum interest payments on the original loan

lisyloo

Yep, I think initially there was some confusion as it looked like you were going to save the money when in fact you do need a loan.
This changes things slightly because whilst it would be hard to make money out of savings, it does look like it might be the cheapest way to get the loan.

So I don't think you are missing anything,
If it's the cheapest way to get the loan and you understand the tax and order of repayment issues (and the importance of not missing payments as whole deal can be withdrawn) then I can't see any reason why it shouldnt' be the cheapest way to get a loan.

The only think I'd say is that I would recommend budgetting and saving for expenses that can be anticipated.
People know that house repairs or car repairs will be needed at some time.
If you don't a realtibely small sum put away then how will you manage if you were made redundant.
Just something to think about as sickness, unemployment and things breaking down can all be planned for and it sounds as though you sail fairly close to the wind with your cash flow.
I realise that this is quite a large amount to find for a repair but if you think of being out of work for months on end, then you'll realise it's not a large sum.
Rule of thumb for an emergency fund ios 3 months income although arguable it should be higher in a recession as unemployment period could be longer.

leegolf7

The only think I'd say is that I would recommend budgetting and saving for expenses that can be anticipated.
People know that house repairs or car repairs will be needed at some time.
If you don't a realtibely small sum put away then how will you manage if you were made redundant. good advice
Just something to think about as sickness, unemployment and things breaking down can all be planned for and it sounds as though you sail fairly close to the wind with your cash flow. sooo tru!
I realise that this is quite a large amount to find for a repair but if you think of being out of work for months on end, then you'll realise it's not a large sum.
Rule of thumb for an emergency fund ios 3 months income although arguable it should be higher in a recession as unemployment period could be longer.[/QUOTE]

i've got to admit that of the offer hadn't popped up, I would probably wait for the heating to break down, (its about 65% efficient according to the last engineer service, making some really interesting gurling noises and the parts are obsolete!!!) would then be flapping around to raise the money - probably at a higher rate. At least now it's on the table, I can accept it, make the payments and as long as I dont spend it, its there to be paid back straight away (worse case scenario), in the mean time, I am looking into immediate access, fixed investments that will revover at least some of the interest I'm paying out! One I find interesting/hilarious (thanks to :money:) is that I can borrow the money from Halifax on my CC, open a current account with them, deposit £1000/ month online, withdraw it the same month and then repeat the cycle the next month - they will then pay out £5.00 after tax for each month I pay in 1K.... just had a thought... what's to stop the Missus opening an account and we use another of the £1000 to do the same for her?? (dare not open one for each of the kids - might not see it again!) 5% each, instant access no ties...sureley it cant be that easy???

lisyloo

I can't see any catch provided the missus doesn't run off with the money and you are not tempted to spend it and you are disciplined about payments.
Setting up direct debits is a good way to ensure regular payments are made on time.

Yes these things can work.
Most people either can't be bothered or fall down at one of the hurdles.
But yes it can be that easy of you are prepared to do all the groundwork.