Advice Required

csarina

I was having coffee today with a friend who asked me a question I did not think I could answer.

She has an outstanding CC debt with Tesco(?RBS) of around £5800. She is paying it off at £185.00 a month, The rate is 1.456% a month balance after September payment of £40.06 was £2817.45. The life of the balance is 0.658% payment £22.73 Balance at the end of September £3322.91.

She wanted to know if it would be better to get a 36 month loan at 8.5% to pay off the card, it would be about the same as her present payment.

If she carries on paying Tesco the £185 a month how long is it going to take her to pay it off, would she be better to transfer to a fixed rate loan????

I did ask if she had the funds available to snowball the CC. Just now she has not but might be able to step the payments up to £200 from April. She is also paying off an overdraft which should be clear early in the New Year.

izools

If she can get a loan for under 10% APR then she would be a very lucky woman! And also much better off.

If not, it may be better to go around the 0% deals transferring the balance until the balance is repaid in full

Virgin currently offer a 16 month 0% Balance Transfer offer, and once that is up she could transfer to say Egg and then if there's still an outstanding balance after the 0% period with Egg runs out off somewhere else etc.

Sure, there will be a 2.5% ~ 3% fee, but that's only charged every time you switch, so works out cheapest overall

csarina

She has tried to get a 0% deal, the £3000 was a balance transfer from Virgin to Tesco when the deal ran out.

Apparently she can apply for a loan from her bank at 8.5% for 36 months she would still be paying about the same amount.

I was not sure if she would be better off taking a loan than keeping the CC and making the £185 payment and then increasing it to £200 in April.

izools

If she's been pre-approved for the loan, then go for it, especially if she can get that rate. It will be cheaper than what she is paying now, by far.

But make sure she checks what APR the computer comes up with after the application has been processed as it is often more than the advertised rate

She should put any overpayments into an ISA, and once the balance of the ISA equals or exceeds the balance of the loan, she should settle early. That way it will cost even less and be a very smart move

csarina

She will have to read the terms and conditions I think that there is a penalty now for settling a loan early.....I will make sure she checks the rate when she fills in the form on line.

izools

There shouldn't be a penalty for settling early, if there is, then she might want to look elsewhere.

The only time I've come across an early settlement charge is with Welcome Finance who charged around £2,000 for settling a £15,000 loan four months in.

Robert_Sterling

At £185 per month at the given monthly rate the outstanding balance will be down to about £63.

csarina

I checked the conditions and there is a penalty of 60 days interest. How ever if she overpays the length of the term will be reduced without penalty.

I have suggested that she takes the loan and then overpays as much as she can to try and get the term down to 2 years.

Should there be a hike in the CC interest rates she will be quids in.

Thanks for the advice. Much appreciated.