Help with this calculation....

MissShoes

Hi experts!

Quick maths questions for those who can...my brain is failing me.

If you were taking a £9300 money transfer, which would be the best option?

Option A:

0% interest p.a. over 18 months with a 3.9% transfer fee

Option B:

3.9% interest p.a. over 36 months with a 0% transfer fee

Any ideas how much each option would cost overall and monthly payment wise to clear the balance within the offer time frame (18 or 36 months)?

Also- if anyone can share the maths process with me on how to calculate this, that would be great?

Shoes

Willing2Learn

Maths is not my strong suit. So I use a credit card calculator to work out you would pay £9852 with option B.

Meanwhile Option A
3.9% of £9,300 (£362.7 interest @ 3.9% transfer fee = Total 9662.70)

I used the credit card calculator linked below:
https://www.uswitch.com/credit-cards/calculator/

Option A, according to my calculations saves you money.

JGB1955

Option B would work out at £278 per month. Option A would be £537 per month.

bengal-stripe

I presume, you haven't applied for the card yet. Be aware that it is not very likely you'll be given a balance-transfer card with a limit that high.

Don't count your chicken........just yet!

Nebulous2

bengal-stripe wrote: »

I presume, you haven't applied for the card yet. Be aware that it is not very likely you'll be given a balance-transfer card with a limit that high.

Don't count your chicken........just yet!

It’s very possible to get that kind of credit limit, depending how much the lender likes you.

However those sound like existing customer deals from MBNA to me, so its very possible the OP already has the card and credit limit.

themorganator4

Option A: 362.7 one off payment (the 3.9% fee)


Option B: 362.7 per year X3 (the whole 0% term i.e 36 months) = £1088 paid in interest


If you would have paid off the whole amount (or a large chunk of it) by the 18th month then Option A is the cheaper option.


Option B would only be cheaper if after 18 months your interest goes right up to, say 22% P.A (after the interest free period runs out on option a) and you haven't paid it off or you still have a significant chunk left

18cc

Before the question can be answered in a meaningful way, you need to state how long you want to have the loan for - is it 18 months or 36 months?

If 18 months it would be best to pay the one lot of 3.9% and get the 0% card

If 36 months, then it depends what the interest rate is on card A for the final 18 months after the 0% has finished.

BakingC

themorganator4 wrote: »

Option A: 362.7 one off payment (the 3.9% fee)


Option B: 362.7 per year X3 (the whole 0% term i.e 36 months) = £1088 paid in interest


If you would have paid off the whole amount (or a large chunk of it) by the 18th month then Option A is the cheaper option.


Option B would only be cheaper if after 18 months your interest goes right up to, say 22% P.A (after the interest free period runs out on option a) and you haven't paid it off or you still have a significant chunk left

I don;t think your option B is correct as the interest is not all front loaded and would be calculated on the daily balance. Willing2learn calculated it to be around £9.8K.

I think if they chose the 0% fee and overpaid it they might be able to get it cheaper than the 3.9% fee charged upfront but depends how much cash they have / be willing to throw at it.

Using the MSE overpayment calculator I get normally 3.9% interest would be £274 a month to clear in 36 months (to clear option A in 18 months would be £537 a month).

If you overpaid the difference between the 2 you would pay £537 a month clear it in 18 months and cost roughly the same in total so if they could afford slightly more than £537 a month then it would start saving them more money. However with option B it also gives them the flexibility if they cannot clear in 18 months. Even better if they could do more OPs at the start which would reduce interest sooner.

18cc

Lots of assumptions here, including how much a month the OP will repay. How does the calculation look if the OP only repays the minimum amount each month?

The OP needs to give more info.

themorganator4

BakingC wrote: »

I don;t think your option B is correct as the interest is not all front loaded and would be calculated on the daily balance. Willing2learn calcualted it to be around £9.8K.

I think if they chose the 0% fee and overpaid it they might be able to get it cheaper than the 3.9% fee charged upfront but depends how much cash they have / be willing to throw at it.

Using the MSE overpayment calculator I get normally 3.9% interest would be £274 a month to clear in 36 months (to clear option A in 18 months would be £537 a month).

If you overpaid the difference between the 2 you would pay £537 a month clear it in 18 months and cost roughly the same in total so if they could afford slightly more than £537 a month then it would start saving them more money. However with option B it also gives them the flexibility if they cannot clear in 18 months. Even better if they could do more OPs at the start which would reduce interest sooner.

true, trouble is the OP hasn't really given enough info so I was assuming a lot here.

jcontest

This is on the back of an envelope so perhaps I have it a little wrong.

Think of it this way.
The 36 months, if you spread the payment equally over 3 years then you pay £570 interest. So about 6.1% interest on the total balance.

With the balance transfer fee your total interest will be 3.9%.

Without a lot more numbers, I would go with the 18 month option, if you cant pay it off in time AND you can transfer again then the balance transfer should still win out because next time you'll only pay a transfer charge on what is remaining.
If you feel that your going to be stuck with the 18 month card for 36 months, then you need to tell us what the rate will be once the introductory rate is over.


Option A
(9300*1.039)/18 = £536.82 PCM
Total Repayable £9,662.76 (3.9%)

Option B
9300*(0.039/12)/(1-((1+(0.039/12))^-36)) = £274.16 PCM
Total Repayable £9,869.76 (6.12%)