Advice desperately needed from you good people

paulcollins10

Thanks for your time in reading this.

I need some advice regarding managing my money, loans etc.

Situation is I have £10,000 on an egg loan at the moment. I'm paying back roughly £250 a month on a rate of 6.7% and this will finish in June 2010.

What i guess i'm really asking is what is the best way to pay off this loan, on the best interest rate and in the shortest time without increasing my monthly payment too much?

Would it be worthwhile putting a chunk of the 10k (something like 4 or 5k) on one of the 9-12 months interest free, balance transfer credit cards so i'm paying interest on a smaller amouth with Egg?

All advice would be extremely welcomed

Thanks in advance

westernpromise

Basically, if you shift money to a 0% deal, you will probably increase your monthly payments. The only way to reduce them is to extend the loan term, but that entails paying interest for longer, and thus usually works out to be more costly.

If you have the option under the loan terms of making additional payments, then yes, you could get a card which allows balance transfers (BTs) to your current account, use the cash this puts in your current account to pay off a chunk of the loan, and meanwhile you are getting that chunk at 0% for as long as you can rotate from one 0% card to the next.

However:-

1/ You still have to make the minimum payments to the credit card, typically around 3% of the balance outstanding. This will be more than what you are now paying on your loan.

Eg if you borrowed £3,000 at 6.7% over 5 years, it will cost you £58.98 a month. If you put £2,000 onto a 0% card and took out a £1,000 loan on the same terms as before, you'd initially be paying £60 a month back to the credit card and £19.66 back on the loan. Total you have to find = £79.66 or about £21 a month more than just the loan.

In the worst case, if you simply repaid £2,000 of a pre-existing £3,000 loan, you might find you had to continue paying £58.98 on the loan - but for fewer months - while also paying £60 to the credit card company. The £60 would drop steadily (3% of the remaining balance), and overall you'd pay less interest, but what you pay is front-loaded rather than evenly-spread. So the upfront pain is non-trivial.

Some cards allow unlimited 0% BTs within the promotional period, which gets you out of the above problem. I.e. you could BT the £60 back to your current account again as soon as you have paid it. A hassle, but possible.

2/ If you do go this route, you are relying on being able to get replacement 0% deals as and when you need them. If you cannot do this, then the rate after the 0% deal expires usually reverts to one a lot higher than the 6.7%. It will not take many months of borrowing on a credit card at 15% to eat up all the savings you made by borrowing for 9 months at 0%, and more. That of course is precisely what the card companies are betting on.

3/ Watch out for uncapped BT fees of 2%. If you replace your 6.7% loan with a succession of 6-month 0% card deals, with a 2% fee each time, you're paying 4% interest on those BTs, in effect. 4% versus 6.7% is hardly worth it.

HTH.

paulcollins10

can anyone else offer anymore advice please?

tomstickland

If you can move a chunk onto a 0% card then, yes, it will save you money.
Can you adjust the amount you pay to egg each month?
If so, then move a portion to a 0% card and then pay back the minimum monthly charge on the card and use the rest of your available money to pay the loan off.
It'd be most efficient if you could elect not to pay any of the 0% loan off each month, but that's not viable.

grumbler

paulcollins10 wrote:

...Would it be worthwhile putting a chunk of the 10k (something like 4 or 5k) on one of the 9-12 months interest free, balance transfer credit cards so i'm paying interest on a smaller amouth with Egg?
...

1. It is not easy to move a debt from a loan to a CC. You need a SBT card (Super BTs ) or an extra 'mule' card. Did you read the Half Price Plastic Loans article?
2. Long-term fee-free 0% BTs are qute rare now. See http://www.stoozing.com/0fees.htm. Fee-free are not longer than 6 months. 2% fee for 6 months equates to more than 4% APR.
3. 6.7% is not a bad rate. Even if you manage to switch half of it to 4% for 4 years, you will save only less than £300 in interest.

IMHO, it is wiser to consider cards with low Life of Balance interest rate ...

mrs_deadline

If there are no penalties, why not just keep the loan where it is and make overpayments as often as you can afford to? main thing is to keep your repayment record squeaky clean for later credit scoring purposes.

You could try putting your details into a loan repayment calculator to see if this will work for you, e.g. here

http://money.guardian.co.uk/calculator/form/0,,603112,00.html