Loan interest rates

danielle21_2

Hi Guys

Is their much difference from a 7.7% rate to a 9.9% - as the repayments are only around £10 a month more - I dont know much about loans but im extending a £5K 7.7% loan to a £7K 9.9% loan over 3 years to consolidate.

Thanks

nomoneytoday

You have already done the maths and found the difference in payments. However, have you considered another route to consolidation? Snowballing is the buzzword of the site

Consolidation in this case means paying more interest at a higher rate for longer...

AMILLIONDOLLARS

No point consolidating if you are going to run up more debt

see this link,http://www.whatsthecost.co.uk/snowball.aspx

hopefully it will help you see the light:D , before you sign on the dotted line

moneyLost_2

danielle21 wrote:

Is their much difference from a 7.7% rate to a 9.9% - as the repayments are only around £10 a month more - I dont know much about loans but im extending a £5K 7.7% loan to a £7K 9.9% loan over 3 years to consolidate.

Not quite sure where you get the "£10 a month more". Is the £7k loan over a longer period of time?

For what it's worth, as others have said, you might be better off snowballing, but if you compare two loans, both for £5,000 and both over 3 years, then the TAR (total amount repayable) is as follows:

@ 7.7%: £5,615
@ 9.9%: £5,799

So, yes, that extra 2.2% is costing you £184.

But remember that if the 9.9% loan is over a longer period of time, then the TAR goes up dramatically. £6,075 if 4 years, £6,359 over 5.

If you can help it, don't look at the monthly payments, or even the APR, but the TAR. That's the important figure! IMO, APR can be very misleading as it's all to do with the length of the loan (Annual Percentage Rate). I'd rather have a debt at 20% over 1 year than 5% over 5.