How do I work out how much I need to repay?

Globemaster

Hi all. I'm after some help in working out how much I have to repay my daughter.
Background. My daughter, (who is 2 ½) has £12300 in the bank. This is money I have put away for her and do so every month till she needs it, but it’s in my name in a 123 acc earning 2.4% after tax. This money is 123 interest, 123 cash back and the monthly child benefit.
We have decided to get a new car and instead of going and getting a loan and upsetting our credit score blah blah as we moved house 4 months ago, we thought why not use this money that isn't going to be needed for the next 16 years (hopefully).
SO, I want to borrow £8736 over 5 years and repay, so my daughter does NOT lose a single penny with me doing this.
So I have looked at these 2 ways to work out how much I need to repay based on borrowing at 3% interest instead of the 2.4% she currently earns. But there is a difference of £767 between the two ways. Which is the correct way to work this out? Obviously, I'm not wanting to rip my daughter off, but equally not wanting to massively overpay.
1) On the MSE personal loans calculator and using the calculator to work out what she would have earned if I hadn't borrowed is. £8736 @ 3% over 5yrs = £682 interest earned / 60mths = £156/mth repayment.
2) On the ISA page, using the savings calculator entering the same £8736 @ 3% over 5yrs putting nothing extra each month, would earn £1391.42 interest and this equates to a repayment of £168.79/mth

Thank you all for reading and any advice is greatly appreciated.
Sven

[Deleted User]

I imagine it's the second way, as it's looking at the interest on the lump sum for 5 years (which she currently has).

The other way will be looking at the interest on the payments you're not making each month, which is why it's about half the interest, as it ramps up from zero to the full amount over 5 years.

bsms1147

Yep, the second way.

Edit: Actually, see below.

Globemaster

Thanks so far for the replies, but when I rethought this through, I've just realised that it's more expensive to borrow off myself (technically) than to borrow off a bank! Crazy!
just had a quick look on the Santander website for 123 customers.
I could borrow £8750 over 5 yrs paying £161.78 / mth.
I always thought you should use your own money before borrowing. I have to say I feel pretty Sh*ty about borrowing off my daughter, but it almost seems better to go to a bank AND cheaper LOL

Foxy-Stoat_3

She is your daughter and she doesn't know that she is getting ANY money, let alone becoming a lender.

If you can get approved for the loan then it won't hurt to take it out and make the regular payments if you can afford them.

There is a saying don't borrow from family or friends, but in this case the family member is 2 and the person who put the money into their account is you!

The choice is really yours and your partner's.

bsms1147

Actually thinking about it, with the second method, you've calculated the amount of interest she would have received had you not taken anything out of the account.

Are you paying it back month into her account?
Or are you planning on paying it back in a lump sum at the end of the 5 years?

So if the former, you won't be paying this amount back all in one go at the end of the 5 years, you'll be paying towards it monthly. Some repayments are therefore made to the account each month, and those repayments earn interest in the account, interest that we had discounted from the equation.

The whole amount is missing from her 123 account for just that first month of the five years, or 60 months; then 59/60ths of the whole amount is missing from her account for the next month, and 58/60ths of the amount for month 3, and so on. By month 60 it is all repaid. It's the almost the inverse of a regular savings account. I would say that the interest that is missing is much more in line with the first option.

So if you are paying the money back monthly (and I'm sure someone could work the maths out in its entirety), but if the loan is >2.4% APR then it makes more sense to borrow from your daughter.

Globemaster

I was planning to pay back monthly, yes.

lynz68

I would be more inclined to use your daughters money. I wouldn't get to bogged down in which way you work it out there is not that much difference per month in the grand scale of things I would just round the figures up to the nearest £10 so going by your figures I would just pay £170 into her account. Would rather overpay my child than a bank.