Calculating Balance Transfer Interest

rkkm

I have £12k that I need to do a balance transfer for, and I have two offers.

1. 0% APR with a 3.5% fee for 12 months
2. 4.9% pa with a 0% fee for 48 months.

I will be paying £300 per month and will definitely need more than 12 months, but how do I calculate the potential interest on the 4.9% offer so that I can compare to the 0% offer to see which would potentially be the best option?

I have 3 other credit cards with zero balance, and I usually have balance transfer offers available each month, although I know it's not guaranteed I should be able to do another transfer in 12 months when needed.

Any suggestions would be appreciated.

[Deleted User]

Interest is calculated on a daily basis, so its a lot of work to get an accurate fugre. 

You could estimate what your monthly balance will be until you pay if off and use a monthly rate, for a rough idea. As an example if you paid it all over within 12 months, it would give you an average balance of 6k, with interest of £294. 

rkkm

Thanks for your reply.

So if I paid £300 per month would I be correct is saying as very rough figures for comparison to a transfer fee:
End of Yr 1: Balance £8400 x 4.9% - £411 interest for the year
End of Yr 2: Balance £4800 x 4.9% - £235 interest for the year
End of Yr 3: Balance £1200 x 4.9% - £58 interest for the year?

If these numbers a roughly in the ball park, then the interest isn't far off balance transfer fees of 5%, which is typically the highest I've ever been offered. Or am I completely misunderstanding?

I like the idea of having it at a set rate for 48 months, especially with the way things are now and balance transfers options are never guaranteed.  But I want to try and get the best value interest wise.

molerat

My back of a fag packet calculation is that at £300 pm and 4.9% you will pay it off in 44 months with a total interest of £1128.  At the end of year 1 you will have a balance of £9182 having paid £519 interest. End of year 2 £5960 / £365 int, year 3 £2577 / £202 int with a another £41 interest by month 44.

On the assumption you can continue getting 12mth 3.5% fee / 0% interest transfers it will  take 43 months to pay off at a cost of £1018.

Can you afford to throw any extra at the debt ?  On the 48 month term every £100 extra you pay off will save you 41p interest for each month remaining, for example an extra £100 in M2 will save you £17 interest over the remaining term

rkkm

Thanks Molerat for that breakdown. It's really helpful. 
I can probably afford to pay £400 or £500 per month, but I can guarantee £300 without any doubt, so I suppose when I can do a higher amount it will be a bonus to knock off a bit more of the interest. 

molerat

£300 will see it paid off inside the promo period and at a rate you can afford.  At the end of the month you find you have, say, £200 left then just make a manual payment.

rkkm

Thank you Molerat, I know what to do now.