When to pay off a fixed value loan

tbourner

Is there a calculator somewhere that tells me the best time to pay off a loan with a higher interest credit card or overdraft, but that then allows me to pay more off?

OK that sounds confusing reading it back, example:
I have a loan at 6.9% (pretty good), and I'm paying £267 a month into it.
I have a credit card that charges 14.9% that is empty (well, it will be).
Assuming the CC has infinite limit on it, at what point should I pay off the loan and put it onto CC?

You'll probably say never, but if I have £800 a month to spare, there's no point in paying £267 a month for the next 5 years, if I can do it on the CC and pay off £800 a month!

I could probably do it on Excel, but it's confusing me with the interest calculations, I can never get them right for some reason, I was wondering if there was a way I could put in the loan details, the CC interest and the amount I have available to pay onto debts and it say whether transfering is a good idea or not. Or is it actually a really simple calculation and I'm just not seeing it?

Mikeone

Are you asking whether you should pay off your loan with a credit card?

podperson

Sorry just to clarify, will the loan not allow you to do additional payments? And if so why will they not let you do that but allow you to pay it off with a cc?

Tixy

I don't think there is a calculator, you'll probably need to spreadsheet it.

You need to know the penalty for paying off early and confirm you cannot make overpayments.

Then compare leaving the loan as it is at £267 and saving up the rest of the £800 in a savings account until you have the full balance to repay and work out the total interest on that.
Then to move the debt across to a card. Is your card one that allows you to move the money to your current account? if so factor in the money transfer fee. If it isn't then you may not be able to pay the loan off with the card, you'd need to check for certain with the loan people and find out how that would be treated by your card providers (purchase, transfer or cash advane).

tbourner

Mikeone wrote: »

Are you asking whether you should pay off your loan with a credit card?

Not exactly, but if I did would I pay less interest overall, or just pay it off quicker.

podperson wrote: »

Sorry just to clarify, will the loan not allow you to do additional payments? And if so why will they not let you do that but allow you to pay it off with a cc?

I haven't actually enquired about paying it off with a credit card, do they not allow that then? I can't overpay any amount I can only ask for a settlement figure and pay the whole lot - which I assumed I could do with a CC.

Tixy wrote: »

I don't think there is a calculator, you'll probably need to spreadsheet it.

You need to know the penalty for paying off early and confirm you cannot make overpayments.

Then compare leaving the loan as it is at £267 and saving up the rest of the £800 in a savings account until you have the full balance to repay and work out the total interest on that.
Then to move the debt across to a card. Is your card one that allows you to move the money to your current account? if so factor in the money transfer fee. If it isn't then you may not be able to pay the loan off with the card, you'd need to check for certain with the loan people and find out how that would be treated by your card providers (purchase, transfer or cash advane).

Well I've started a simple spreadsheet, using the functions like =PV and =NPER, I haven't taken into account transfer fees yet!
I'll have to add a seperate bit for savings accounts as well, as that's probably a better option in every case I would imagine!

I only said credit card as an example, I could for example pay off the loan with my bank account and have it in my overdraft.

Tixy

I think that looking at your example interest rates (or more importantly the difference between them) it will make most financial sense to save the extra you can afford and pay off in full when you have enough.
I haven't worked it out mathmatically just think that will be the case.

That said, I'd also say it only becomes relevant when all your more expensive debt is paid off, if you have other debts at high(er) interest rates then it will be better to just pay £267 off the loan for now and throw the rest of the money you can afford at the higher rate debts.

podperson

If they won't allow you to make additional payments then would imagine there will be a penalty for paying it off early so need to be checking how much that will be. If you have the extra £800 a month think it would make more sense to put into a savings account and when you have enough then pay the loan off rather then changing it now to a higher interest rate.

debtdesperado

Am following this thread with interest as I'm in the same position.

For me the crucial factor is discipline...whereas with a loan I have no choice but to pay, and it just ticks along happily, with a credit card, I just don't trust myself in a month where something unexpected comes up to make the same payment to my creditcard.. and then I'm on the slippery slope.

This is also illustrated by my attempts to save up overpayments... which so far, I keep chipping into for some 'emergency' or another...

Tixy

debtdesperado - maybe a savings account without instant access - to make it that bit harder to get to your money? and pay in a fixed standing order each month straight after payday?

tbourner

Tixy wrote: »

That said, I'd also say it only becomes relevant when all your more expensive debt is paid off, if you have other debts at high(er) interest rates then it will be better to just pay £267 off the loan for now and throw the rest of the money you can afford at the higher rate debts.

Yep, this all comes from my snowball calc (my own one and the MakeSense website), when it says I'll have paid off my credit cards and overdraft etc. within X months, but then have another Y months to pay the plodding loan payments but with an additional lump of money now available since X and sat doing nothing.