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repaying a lump sum to loan to get a better initial rate
OK, was looking at a loan from a major bank whereby the interest rate decreases from 22.9% at a loan of 5000 or less to 3.6% for loans more than £7500 (!!!)
so, if i want to borrow £3500, monthly payment of £131, that will result in a total repayment of £4374
So, what i was thinking... they dont charge early repayment fees so it should be possible to (for a loan of 3,500) to avoid paying 22.9% and keep the monthly payments down as much as possible by:
- taking a loan for £7500, to get rate of 3.9% over max term (60 months) resulting in a monthly repayment of £136
- immediately repaying what i dont need (AKA £4k), leaving a loan of £3500
- continuing to repay at £136 would take less 28 months to pay off, saving potentially 7 months payments against taking the basic £3500 loan. BY my rough calculations, the total interest paid would be about £137
Can anyone see the pitfalls in this approach?
so, if i want to borrow £3500, monthly payment of £131, that will result in a total repayment of £4374
So, what i was thinking... they dont charge early repayment fees so it should be possible to (for a loan of 3,500) to avoid paying 22.9% and keep the monthly payments down as much as possible by:
- taking a loan for £7500, to get rate of 3.9% over max term (60 months) resulting in a monthly repayment of £136
- immediately repaying what i dont need (AKA £4k), leaving a loan of £3500
- continuing to repay at £136 would take less 28 months to pay off, saving potentially 7 months payments against taking the basic £3500 loan. BY my rough calculations, the total interest paid would be about £137
Can anyone see the pitfalls in this approach?
0
Comments
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Only pitfall is not getting the higher loan or the rate, you don't make bank so we don't know.
John0 -
No early repayment charge is for the full loan to be paid off in one go. You could make a manual payment for £4k but that may stop the direct debit being taken because of the credit balance. Ok, you can make manual payments but trying to get a true balance when there is such a big credit on the account. Messy. Id take the surplus £4k and put in a 2 year bond and after 2 years get a settlement fig off the bank.0
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WillyWonga wrote: »No early repayment charge is for the full loan to be paid off in one go. You could make a manual payment for £4k but that may stop the direct debit being taken because of the credit balance. Ok, you can make manual payments but trying to get a true balance when there is such a big credit on the account. Messy. Id take the surplus £4k and put in a 2 year bond and after 2 years get a settlement fig off the bank.
Why would there be a credit balance and why would the DD stop? That makes no sense.urs sinserly,
~~joosy jeezus~~0 -
Nothing wrong with applying for more than you need, assuming you get the lower interest rate.
You can repay £4000 after the first/second payment or keep it in Premium Bonds for a year and make a lump sum payment then.
Good lucks and let us know how you get on.0
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