£1,000 loan or 0% CC to pay off overdraft?

Eoin_McLove

I need to reduce the overdraft on my Natwest graduate account by £1,000 before I start being charged interest. I have two options, but I'm not sure which one to go for.

The first is to use Natwest's 'Graduate Overdraft Repayment Plan', which allows me to borrow the £1,000 interest-free over a maximum of three years. I need to keep my monthly repayments as low as possible, since I'm on a tight budget next year when I start work, so I would take this loan out over the maximum term of three years. This option works out at £27.78 per month for three years, or £333.33 per year.

The second option is to get a Capital One Platinum card and balance-transfer the £1,000. This card has 0% on BTs until September 2007, and a 2% BT fee is charged. This works out at an average of £28.91 per month from 1st August 2006 to 1st August 2007, or £346.97 for the year.

At first glance, the Natwest repayment plan seems to be the better option, because (i) it's cheaper per year, and (ii) it avoids the hassle of having to apply for new 0% credit cards when the introductory periods end, and therefore balance transfer fees, which certainly add up.

Your advice is much appreciated.

jessicamb

How does the repayment plan work? It sounds more appealing to me by virtue of being simpler, but does it have the capacity to overpay? You could probably clear it earlier by throwing a spare £10 or so at it whenever you have the chance

CLAPTON

option 1 : interst free loan for three years
option 2: interest free loan for 1 and a bit years then pay interest for one and a bit years?

can you get better than interest free for 3 years?

Eoin_McLove

jessicamb wrote:

How does the repayment plan work? It sounds more appealing to me by virtue of being simpler, but does it have the capacity to overpay? You could probably clear it earlier by throwing a spare £10 or so at it whenever you have the chance

There are no early-repayment fees, which is good. The website address is: http://www.natwest.com/personal02a.asp?id=PERSONAL/BORROW/LOANS/GRADUATE_LOAN/INTEREST_FREE

However, I've just realised something quite important. I completed my first degree, and upgraded to the graduate account, last July. I'm now doing a Masters degree. The point is that Natwest says that you have a maximum of three years to repay the loan from the date of graduation. This means that I'll only have 24 months to repay £1,000. That whacks it up to £41.67 per month for two years. There is a slight possibility that I might be able to take advantage of Natwest employees' stupidity and wangle a repayment term of 36 months if I explain that I'm still a student, albeit a postgraduate. Unlikely though.

So, yeah, this little detail brings the repayments for this coming year to £500 with the Natwest option. Pretty cack compared to the £346.97 with a 0% credit card.

jessicamb

Have you explained that you will continue studying? They may let it roll on for another year.

CLAPTON

do you have a 0% credit card for three years?

Eoin_McLove

jessicamb wrote:

Have you explained that you will continue studying? They may let it roll on for another year.

I complete my MA in August, and then I start training to be a chartered accountant, so to Natwest I won't be a 'student' student. I could try, but I don't think I'll pull it off to say I'm going to be continuing studying.

Eoin_McLove

CLAPTON wrote:

do you have a 0% credit card for three years?

The Capital One Card would get me to September 2007, and then I'd have to balance-transfer to another good 0% card. I'm confident that there'll still be good 0% BT offers.

My priority is to keep the monthly repayments low from August 2006 to September 2007, as my budget's pretty tight. I should get a good pay-rise next year, so money won't be so tight.

jessicamb

No you definitely wont pull it off with accountancy training. In terms of credit its still a good deal though at 0%. Payments might be a bit higher but you'll get it cleared off a lot sooner.

In terms of salary you'll be getting a few significant rises over the next couple of years anyway as you progress with your studies - so take this into consideration when you are deciding what to do.

Eoin_McLove

I can't really afford £500 from August 2006 to August 2007 with the Natwest plan, so it makes more sense to go with the 0% credit card option because it keeps my monthly repayments much lower, leaving me with more money for other things. I'm not worried about paying it off as soon as possible for the moment; I just need to keep the monthly repayments down until September 2007 when hopefully my salary will have increased by £2-3k, and when I can get rid of the overdraft much more quickly.

Thanks for your advice btw.