should I pay it off ???

oops_a_daisy

Hi there - was wondering if anybody could give me some advice. I have a loan which has 28 payments of £127.44 left to pay giving a total of £3568.32 outstanding. If I pay off the loan they would need a payment of £3356.36 so that would be a saving of £211.96. Because of a bonus coming to me next week and some other money owed I am wondering if I would be best to pay off the loan or carry on paying the monthly installments and put the money into a savings account. By my calculations If the money was put into an ING account I would get 4.5% interest on the £3356.36 which would work out at £352.42 over the 28 months. Am I missing something ?

grumbler

http://www.whatsthecost.com/loan.aspx

£211.96 interest on £3356.36 loan over 28 months is equivalent to about 5.12% APR. You cannot beat this with 4.5% AER even if you are not a taxpayer (if you are 4.5%AER gross is in fact 3.6% net). IMO it is better to repay the loan ASAP. Your calculations don't take into account the fact that the initial £3356.36 amount saved gradually decreases when you use it to make the loan monthly payments.

oops_a_daisy

sorry probably didnt make it clear - I was actually going to make the loan repayments on top of saving the money that I could pay the loan off so basically put £3356.36 into a savings account and earn interest on it as well as pay the 28 repayments to pay off the loan monthly from my salary. This is the only debt that I have apart from my mortgage and a credit card on 0% which I have the money to pay off in an ISA. The loan is 6.9% and I am a basic rate tax payer.

grumbler

oops_a_daisy wrote:

sorry probably didnt make it clear - I was actually going to make the loan repayments on top of saving the money that I could pay the loan off so basically put £3356.36 into a savings account and earn interest on it as well as pay the 28 repayments to pay off the loan monthly from my salary.

This doesn't change anything. If you borrow money at 5.12% APR you cannot make profit by putting the money to a saving account with AER less than 5.12% net. Your net rate is just 3.6% - much lower than 5.12%. You can make only loss.

oops_a_daisy

thanks Grumbler - still dont quite understand ( am either having a blonde or senior moment ) but I think I have worked it out another way and it would work out pretty much the same if I did it either way so I think it will be best to go for plan A and pay it off