Loan vs Overdraft

Calnic

I'm wondering what the best route will be? I need to borrow £1000 and pay it off as soon as I can. A loan from my bank offers an APR of 23.9% on a 12 month loan. However, we have an overdraft facility which we don't currently use of £3000, and the nominal monthly rate is 1.52%. We would hope to pay it off within 6 months. So, which would be the cheapest way of borrowing? I'm inclined to go with the O/D route as it's more flexible for making extra payments, but will it be cheaper? The EAR of the O/D is 19.89% but I'm not sure how that compares with the APR (ie is it the same thing)

Opinions please!

opinions4u

EAR and APR are moreorless the same thing.

In this case, I'd take the overdraft route, assuming there are no additional monthly fees for using it.

Or could you apply for a 0% purchase rate credit card?

Calnic

Yep, that's what I thought. Thanks!

Re the 0% card - that was my first idea, but we are buying a car this week and card will a) take too long to arrive etc and b) buying from a private seller who won't take a card payment.

O/D it is then I think! Just wanted to make sure I wasn't misunderstanding the whole interest rate thing and would end up paying more in the long run. O/D is definitely the most flexible route too.

YorkshireBoy

Calnic wrote: »

O/D it is then I think! Just wanted to make sure I wasn't misunderstanding the whole interest rate thing and would end up paying more in the long run. O/D is definitely the most flexible route too.

Don't forget that your overdraft will be returned to(wards) zero with each monthly salary credit, thereby minimising debit interest charges.

Plus, if you put all spend (that perhaps you would on a debit card) on an existing credit card (and settle at the end of the month) you can cut your costs even further.

But, and probably a minor but, overdrafts are repayable on demand. Unlikely, on an otherwise well-managed account, but not unheard of.

Calnic

Hi YorkshireBoy,

We put all our petrol on a Tesco CC and pay off each month in full thus earning clubcard points, but we don't do that for spending. I'm very strict with accounts - we have two (one for bills, one for spending) and the O/D is on the bills account which we only pay a set amount into each month, so it won't pay it off as the DD's mostly come out the day the SO goes in! Highly unlikely bank will ask for O/D to be paid off as we haven't used it in years since we paid it off and have been with them 30 years.

O/D route best option. Thanks for advice!