Am I missing something - personal loan

Bigphil1474

My car is on its last legs, and I've found a decent replacement through a very good source, and it's going to cost about £5k and will be available in a couple of weeks. No concerns with the car, and a loan is affordable. I have been saving £200 a month, but only since Christmas and most of that money is ear-marked anyway.
So I went on to my bank website and did some loan calculations, which is where I am confused.
I can get a £5k loan over 36 months and the interest rate is about 7.3%. If I borrow £7.5k over the same period, the interest rate drops to 4.3% which means that the total interest paid over the 3 years is basically the same. I can afford the monthly payments on the either amount., but it seems to me that if I do borrow £7.5k, the cost of the loan will be the same, and that extra £2.5k is interest free?
I still have to do a bit more shopping around, as my credit rating is excellent (at least with Experian, not sure about the others) so may find a cheaper loan, but am I being daft?

[Deleted User]

Borrowing more can reduce the rate. The smart thing to do is then to make an immediate overpayment of the extra, so as to reduce the interest you'll pay.

But 7.5k over 36 months, even without interest, is over £200 a month. It sounds like you would be stretching yourself to keep up with the payments, if you've only saved £200 a month and that needs to now be spent.

CLAPTON

it's often the case that lower amounts have higher interest rates

you can apply for the higher amount and then repay the 2.5k that you don't need

Bigphil1474

zx81 - managed to save £200 per month comfortably, but the new car will save me about £120 per month through cheaper tax (£30 per year instead of £20 per month) and better fuel economy (about £100 less in fuel). I'm changing from uneconomical petrol car to economical diesel.
From memory the £7.5k loan was going to cost about £220 per month and the £5k loan about £155. Although I could use £70 per month from the extra £2.5k towards the loan payment so it would only cost me about £150 per month anyway, and get a bit of interest on what wasn't being spent.

andyfromotley

you need to shop around a bit more. Are these actual loans that YOU can get

Your spread between the two loans is almost 3%. You may be able to get that down to around 1%.

If your credit history is good the MSE best but table lists 8 loans for £5000 cheaper or equivalent to your £7500.

bearcat16

Another alternative would be to take out a 0% credit card with a money transfer. For example Virgin Money, 0% for 34 months. There is a 2.9% fee however, but it is still cheaper than a personal loan. (Money transfer means that you don't have to transfer the balance from another card, they simply pay the cash into your bank)

If you have good credit score they should offer you a high enough credit limit.

The minimum repayment is 1%, but you just need to simply divide the balance by 34 and pay that every month - that way the balance will be zero when the 0% period ends.

Another bonus is that, being a credit card, you can overpay by any amount at any time easily.

Bigphil1474

Thanks for the advice everyone. I mentioned that I was looking to get a loan for a car to my dad, and he gave me a cheque the next day - It'll come off my inheritance apparently (though I didn't know we were due any).

robatwork

You found the most generous bank there is - Bank of Mumndad.

Make sure you are an extra good son - take him out for a meal.

Gingernutty

Shameless bump over dead :spam: link

lisa110rry

Bigphil1474 wrote: »

Thanks for the advice everyone. I mentioned that I was looking to get a loan for a car to my dad, and he gave me a cheque the next day - It'll come off my inheritance apparently (though I didn't know we were due any).

This post brought on a bit of "optical leakage" with me. We like to reward our kids, don't we? Especially when they are as sensible as the OP seems to be. My husband and I have now got to the point in our lives where funding has actually flowed in the opposite direction when our son made a present of £1000 (I think it was) to my husband for him to upgrade his motability vehicle. Karma.