Sanity check my finance -> personal loan replacement

karlward

I'd apprciate a sanity check of the calculations below. I think that settling the finance for my car with the money from a personal loan should save me about £100 over two years, or more if I put the excess money from the loan into a savings account the whole two years.

I am looking at a loan of a higher value than the finanace settlement amount because at this point (£7600 and above) the APR for the loan available to me through my bank drops from 12.2% to ~8.5% (if I remember correctly) which makes the switch worthwhile.

So, here are the calculations which seem to suggest a saving over the next two years (there are two years of payments left on the finance):

(A) Total cost of car finance was : £9,490
(B) Amount paid so far : £2,915
(C) Amount that should remain : £6,575 (A -

(D) Settlement for finance : £5,861.81
(E) Amount of finance I won't pay : £713.19 (C - D)

(F) Personal loan amount : £7,600
(G) ... and the interest over 2yr : £600.87

(H) The saving? : £112.52 (E - G)

Now, since the amount I will borrow will be ~£1,700 more than I need to pay off the finance, I could put that into a good savings account with a few % interest rate and make another £100 or so... so saving in total ~£200, or I could use it to pay off the higher payments that will come with the loan, as they fall due.

Is my reasoning sound?

Regards,

Karl

Rafter

Karl,

Sounds about right - just double check what the APR is on your car agreement and what the repayment penalty is if any. As long as this is higher than the APR you can get on the loan, you should be quids in.

Worth checking the best buy tables to see whether you don't have to borrow more than you need. Problem with putting it in savings is that after tax you won't make much of a return.

Unfortunately the number of flexible loans that would allow you to make an immediate overpayment is very limited - you could try the post office or nationwide though.

R.

karlward

Rafter wrote: »

Sounds about right - just double check what the APR is on your car agreement and what the repayment penalty is if any. As long as this is higher than the APR you can get on the loan, you should be quids in.

APR on the car agreement is 12.2%. Seems like there is a bit of a penalty or unfavourable way of calculating the settlement figure, but then as long as it is a saving I don't really care.

Rafter wrote: »

Worth checking the best buy tables to see whether you don't have to borrow more than you need. Problem with putting it in savings is that after tax you won't make much of a return.

My problem in the past has been getting approved for loans from my main bank which has put me off attempting to apply for others. So it was nice to be preapproved with another bank I often use. I've had endless troubles with the first bank I mentioned (large, tax-dodging high street bank), some of which I'm convinced have affected my credit rating with them. (I asked them expunge all records from their computers of two applications for loans made when they had very inaccurate information on my circumstances - still waiting for the complaint to be resolved almost 5 months later.)

Rafter wrote: »

Unfortunately the number of flexible loans that would allow you to make an immediate overpayment is very limited - you could try the post office or nationwide though.

Thanks for the info.