Loan rate better than offset mortgage rate? Please help, I'm no good at maths!

Minx

Hi
I was thinking of applying for a £9K loan to buy a car as I'd get a better rate than finance.

The loan rate I was looking at is 3.4 % APR (using Martin's eligibility calculator).
I have an interest only offset mortgage charging interest at 4% (I don't know if that's APR or the other one).

On the face of it, it looks to me like I would be better borrowing more money to place in my bank (offset) account as I'd effectively be borrowing on a better rate!
1) I don't know if I can compare APR to whatever the interest is I'm charged on my offset mortgage
2) Am I being really thick and missing something here?

I'm really not very good at all this stuff so wondering if someone would be able to help me? Should I borrow a 2-3K more that I need for the car or would that be a bad idea?

Thanks

HappyMJ

I would take the loan for as much as you can and offset the excess.

Minx

So I'm not being completely stupid?
The loan rate is better than the offset rate so I'd be better borrowing £15K and have the £6k in my account reducing my mortgage interest, better enabling me to pay the larger monthly repayment on the loan (as long as I'm strict with not spending?

Minx

Also, can you pay back a loan early?
I'm thinking of selling my flat in the next couple of years so I'd want to pay back the loan if I could?

foxy-stoat

Minx wrote: »

Also, can you pay back a loan early?
I'm thinking of selling my flat in the next couple of years so I'd want to pay back the loan if I could?

If you can get a loan for £15,000 at the lowest possible rate and can afford the £280 a month for the next 5 years then go for it. You can repay the loan early, they will charge you a couple of months interest.

If your thinking about selling the property in 2 years then its probably not going to be worth trying though, and the chances of you being offered the headline rate for a £15K loan are slim.

Report back once you get an offer.

Good lucks

lee111s

For the sake of a few quid savings, you could make like much easier and just overpay the mortgage by whatever monthly payments you were going to make to the loan.

Coveredinbees!!!!

I have an offset mortgage and I used 0% purchase credit cards to shop with and the money I didn't spend I used to offset my mortgage then shifted the money on to balance transfer card. I currently don't pay any interest on my mortgage.

Minx

foxy-stoat wrote: »

If you can get a loan for £15,000 at the lowest possible rate and can afford the £280 a month for the next 5 years then go for it. You can repay the loan early, they will charge you a couple of months interest.

If your thinking about selling the property in 2 years then its probably not going to be worth trying though, and the chances of you being offered the headline rate for a £15K loan are slim.

Report back once you get an offer.

Good lucks

So based on your miss-givings about the loan rate, I decided to just go with £12K. I did a soft search with Zopa (based on MSE eligibility calculator; no early payment fees): like you said, they offered 5.5% APR! (but they also quoted 4.5% interest fixed??) Car finance would actually be better.

Why do they do that? I checked my credit score with equifax and it is excellent. Do they actually offer that rate to anyone??

That was only a soft search so I was going to try Cahoot - equal on the calculator - but they just go straight to the hard credit search: I'm wary about having this search on my history if it doesn't work out.

I need at least a £9k loan if I'm going to buy a decent car. Do you think I should try Cahoot for the full £12K or just go for the £9K? Does the amount you apply for actually make a difference?

Minx

lee111s wrote: »

For the sake of a few quid savings, you could make like much easier and just overpay the mortgage by whatever monthly payments you were going to make to the loan.

Thanks, that would make sense but I needed the cash to buy a car and thought I might as well offset a bit in the process.

Minx

Coveredinbees!!!! wrote: »

I have an offset mortgage and I used 0% purchase credit cards to shop with and the money I didn't spend I used to offset my mortgage then shifted the money on to balance transfer card. I currently don't pay any interest on my mortgage.

Wow. You must either have a huge credit limit or a tiny mortgage! :j I've got £75K to cover!
I've been using 0% ers and balance transfers for years but have had a lot of unforeseen expenditure all at once and also need to buy a car - way out of the credit limit I'd get on a new credit card (although have the limit on my current interest paying ones )

foxy-stoat

Minx wrote: »

So based on your miss-givings about the loan rate, I decided to just go with £12K. I did a soft search with Zopa (based on MSE eligibility calculator; no early payment fees): like you said, they offered 5.5% APR! (but they also quoted 4.5% interest fixed??) Car finance would actually be better.

Why do they do that? I checked my credit score with equifax and it is excellent. Do they actually offer that rate to anyone??

That was only a soft search so I was going to try Cahoot - equal on the calculator - but they just go straight to the hard credit search: I'm wary about having this search on my history if it doesn't work out.

I need at least a £9k loan if I'm going to buy a decent car. Do you think I should try Cahoot for the full £12K or just go for the £9K? Does the amount you apply for actually make a difference?

Equifax do not lend money, so the score they give you is just a number to make you feel good about your credit history.

The lenders give you a rate based on your information you supplied, they do not have to give you the headline rate.

I would just get the minimal loan you need, do not worry about off setting due to the timescales and the amounts involved - unless you take out £12K and only spend £2K on a car and keep the other £10K to off set, if the £2K car breaks down then spend the rest on a better one.