LBM had. Changes made. Advice or critique Welcome

Sanctioned_Parts_List

Pip_Boy_111 wrote: »

So with regards to the loan, setting aside my comfort blanket thinking, would this logic still hold true?

It's a frequent topic of discussion on these boards, with some difference in opinion.

One school of thought is that, regardless of your state of indebtedness and the interest rate you're paying, you always need to build an emergency fund. This follows your line of reasoning, that it's psychologically better to have some money to hand in case the boiler/car/whatever goes bang, so that you can rectify it without running up your credit cards again.

The other common opinion is that it's mathematically better to reduce interest-bearing debt as fast as possible. This follows the idea that a £1000 debt at 22% APR costs you £220/year, while £1000 savings at 1.5% APR only earns you £15. In essence, you'd be paying £205 per year for the privilege of having £1000 savings in this example. Also, stuff going bang is a relatively rare event, while bank interest has a 100% probability. Thus the argument is that the available balance on a credit card can act as an emergency fund, at least until such a point as the interest-bearing debt is converted to interest-free.

For HSBC loans: https://www.hsbc.co.uk/content/dam/hsbc/gb/pdf/loans/personal-loan-tandc.pdf

It looks like overpayments are permitted with a fee of 1 month's interest at the old balance, and interest is calculated monthly.

Sanctioned_Parts_List

Pip_Boy_111 wrote: »

So am I right in my assumption that the interest remains the same and the only thing that changes with a regular overpayment is the time to repay? i.e. the amount is the same whether its 3 years or 5 years??? Sorry if I'm missing the bleeding obvious here but I'm going a bit word blind after all the reading I've done today

The interest rate will remain the same at 7.6%, the monthly minimum payment will remain the same at whatever was on your initial loan agreement. By overpaying, you'll pay the principal off faster, so the loan agreement will end sooner, and the total amount paid will be less.

WhenIam64

One school of thought is that, regardless of your state of indebtedness and the interest rate you're paying, you always need to build an emergency fund. This follows your line of reasoning, that it's psychologically better to have some money to hand in case the boiler/car/whatever goes bang, so that you can rectify it without running up your credit cards again.

https://sfs.moneyadviceservice.org.uk/en/what-is-the-standard-financial-statement

If you look at the Standard Financial Statement (SFS) which is a common protocol, a category for savings has been introduced. The logic is

A savings category has been introduced into the SFS, recognising the benefits of building financial resilience for debt advice clients. This small savings allowance is expected to help develop a savings behaviour and increase the capacity to withstand income shocks in the duration of a debt solution.

Some "non-standard" or non-SFS advisors take the mathematical logic though. The issue with that logic is that the whole debt repayment plan is based not on numbers but on trust. As soon as that trust is lost, then creditors may decide to call in their debt in preference to others ... then the dominoes fall.

Anyone carrying out any financial plan - building a home; starting a company; running a country - has a contingency or savings fund. It's just what you do.

https://www.gov.uk/government/publications/contingencies-fund-account-2017-to-2018

Pip_Boy_111

Thanks Sanctioned.
Ok, another update, (a thankyou post has turned into an all day mission to figure out if I can pay things off quicker and save interest )
Having spoken to HSBC, it turns out I can overpay, without penalty and bring down the associated interest costs over the lifetime of the balance. Turns out if I run the loan to term I'm eligible for 10% of the interest back as cashback.
However, I could divert my £50 per month to the loan, plus the overpayments via what's left in the debt payment budget after paying the CC (at the moment around £100 per month). So total £150 p/m overpayment for the next 12 months, then add on what was going to the CC (£290 p/m) as well (totalling £440 p/m overpayment along with £408 p/m scheduled payment = £848 p/m) surely this would save more than 10% of the total interest? This is more than doubling the monthly payments so should more than halve the time taken to clear therefore saving a massive chunk of interest charges. Shouldn't it???
PHEW! Brain hurts now but if anyone is still following and can pick through that rather back of a fag packet wall of rudimentary maths, and make suggestions I both am grateful and salute you!:beer:

Sanctioned_Parts_List

Pip_Boy_111 wrote: »

PHEW! Brain hurts now but if anyone is still following and can pick through that rather back of a fag packet wall of rudimentary maths, and make suggestions I both am grateful and salute you!:beer:

It's not really possible to work out, at present. We'd need to know the balance of the loan, remaining period, monthly repayment amount and interest rate. I think we've got two of those, so far.

Rather than posting them up, though, just go here: https://www.themoneycalculator.com/loans/calculators/loan-overpayment-calculator/#!/dealfinder/loans/

Pip_Boy_111

Well, having input the figures into the calculator and played around with varying overpayment amounts, it seems that even just paying the £100 p/m as we are now will save waaaaaaay more than the 10% cashback is worth! :j
With this in mind, I'mleaning towards paying the £50 p/m towards the loan on top of the £100 we already overpay as this will save us ridiculous amounts of interest (ok, maybe not so ridiculous but hey! It's exciting!) Then when the CC payments are snowballed into that as well, happy days. Debt free date could be sooner than we thought :j
Sanctioned, thankyou for your wise words and sage advice. I doff my cap to you sir!

EDIT: turns out as we already overpay we aren't eligible for the cashback anyway as it will NOT go to term, DUH! Should've realised this! So was a moot point. But still, a VERY worthwhile exercise with VERY worthwhile results!

[Deleted User]

I love your enthusiasm!

Sanctioned_Parts_List

Keep what you've already saved in savings, though - WhenIam64 is absolutely correct that some buffer is required. It just doesn't have to be excessive.

EDIT: you may also find this a useful tool, if you haven't already come across it: http://stoozing.com/calculator/snowball-calculator.php

Pip_Boy_111

My head is spinning with all the new found loan info and figures flying around at the moment!
Yeah, I had planned not to touch what's already in the savings pot and leave for such a time as it may be required. If that day comes, I plan to replenish it back to the (albeit small) fund that it is now.
I have already used the snowball calculator but may check in with it again now I know what I know about overpaying the loan just to double check everything.
Right, plan of action being formulated then I'm about done with figures for today. May reward myself with an ale in front of the football once I've finished up my spreadsheet. (A*di bought of course, still DFW!) :beer:

Pip_Boy_111

SSDD23 wrote: »

I love your enthusiasm!

:rotfl: we'll see how long it lasts! I promise I won't be bombarding the board with posts everyday, hadn't planned to today, but when someone comes along and offers advice like I've received today I just have to run with it while it's fresh or I'll wake up tomorrow and forget it all! :rotfl: