Money Transfer

Essjay229

I think I already know the answer but just want to check.

I'm looking at borrowing £3000 via money transfer. This will only be short term, I'll be able to pay it off in full before the end of the year.

What's the best option I have 2

1. 0% with a 5% fee

2. 5.9%pa over 24month 0%fee

Thank you.

MorningcoffeeIV

Option 2.         

Essjay229

MorningcoffeeIV said:

Option 2.         

I thought so thank you 😊

cymruchris

Essjay229 said:

I'll be able to pay it off in full before the end of the year.

If this is absolutely guaranteed - then definitely option 2.

£3000 - 5% fee -£150 - £3150 you'll pay back at the end of the year no matter how you pay or when you pay (subject to minimum payments)

£3000 - 5.9%p.a. would mean if you paid NOTHING off your card for a WHOLE YEAR you'd pay around £177 in interest for borrowing that money, but you're not borrowing it for a WHOLE YEAR, and you'll be making regular payments off the balance.

It's hard to put an actual £ note cost on the interest you'll pay to the penny, as we don't know what your monthly payments will be, but if you're confident you'll have it paid off in 9 months as you outline your interest will be less than the £150 fee you'd pay by going down the 0% 5% fee route.

If however the worst happened, and you only made minimum payment from taking the money out until the balance was settled much further down the line, you'd incur more interest on the 5.9% route.

The more you can throw into the balance above the minimum payment in the earlier months will also help reduce the interest burden by going down the 5.9% route.

grumbler

Essjay229 said:

1. 0% with a 5% fee

2. 5.9%pa over 24month 0%fee

Why did everybody assume that  the option 1 is for 12 months?

cymruchris

grumbler said:

Essjay229 said:

1. 0% with a 5% fee

2. 5.9%pa over 24month 0%fee

Why did everybody assume that  the option 1 is for 12 months?

I didn't.

MorningcoffeeIV

cymruchris said:

grumbler said:

Essjay229 said:

1. 0% with a 5% fee

2. 5.9%pa over 24month 0%fee

Why did everybody assume that  the option 1 is for 12 months?

I didn't.

Me neither.

grumbler

Well, if 5%

MorningcoffeeIV said:

Option 2.         

MorningcoffeeIV said:

cymruchris said:

grumbler said:

Essjay229 said:

1. 0% with a 5% fee

2. 5.9%pa over 24month 0%fee

Why did everybody assume that  the option 1 is for 12 months?

I didn't.

Me neither.

Well, without knowing what exactly "short term" and "pay it off in full before the end of the year" meant it was impossible to say for sure that option (2) was better.

And if 5% is, say, for the same 24 months it's always better because it's about 2.5% p.a. and you can keep money in a 3%+ savings account instead of paying of the CC in full early.

cymruchris

grumbler said:

Well, if 5%

MorningcoffeeIV said:

Option 2.         

MorningcoffeeIV said:

cymruchris said:

grumbler said:

Essjay229 said:

1. 0% with a 5% fee

2. 5.9%pa over 24month 0%fee

Why did everybody assume that  the option 1 is for 12 months?

I didn't.

Me neither.

Well, without knowing what exactly "short term" and "pay it off in full before the end of the year" meant it was impossible to say for sure that option (2) was better.

And if 5% is, say, for the same 24 months it's always better because it's about 2.5% p.a. and you can keep money in a 3%+ savings account instead of paying of the CC in full early.

We are now in March - the end of the year is December. I took the end of the year to be December the 31st when I calculated the difference between the two options. The OP says they'll have it paid off by the end of the year.

If the OP took out their £3k today, and immediately interest was applied from day 1, and they did nothing to reduce their capital balance (which of course wouldn't happen) on the 5.9% interest or the 5% fee - then there are 296 days left until the end of the year (81 percent of the year).

It's likely of course that the OP would both pay off their capital on a monthly basis as per their contractual minimum payments, and likely complete the overall borrowing before the very last day of the year - but looking at the worst case scenario:

Option 1 - 5% fee - £150 - Total to pay back - £3150 - fee is fixed no matter the time taken to pay back within the promotional period.

Option 2 - 5.9% APR would be £177 interest over a full year where no capital repayments were made - 296 days left, so that's 81 percent of the year. 81 percent of £177 is £143.37. Total to pay back £3143.37.

So by my reckoning as per my original post, £143.37 (The maximum interest to be applied without capital payments) is less than £150. Of course the actual interest paid will be lower still, as the OP will be making at least minimum payments monthly off the capital borrowed (Depending on the card but could be around 5% of the balance each month).

So whichever way you look at it, if the OP is absolutely going to pay it off in full before the end of the year (as they've said) - then guaranteed one hundred percent without failure, the 5.9% option as both I and MorningcoffeeIV mentioned above would be the best option.

Using my rudimentary calculator and a very approximate formula of paying minimum payments each month of 5%, and then having 9 monthly payments of doing so, and then clearing the remaining balance in the final month of the year, I make the interest to be paid around £110-115. A lot of assumptions there in terms of what the minimum payment percentage is, and that ONLY the minimum payment is paid until the balance is cleared in full on the last day of the year, but it's clear which option is the winner.

If the OP paid MORE than the minimum payment each month, the interest charge would be even lower.

 I originally added the proviso that it definitely had to be paid off by year end to ensure it was still the correct option, as if it went to the 24 month term, the fixed fee option would be better. If I've missed anything with my basic maths (And they're not to the penny I'm sure, but pretty close) do let me know, as even the best of us can make errors in our calculations and assumptions.

(Additionally the OP didn't mention that they wanted to involve a savings account - just which was the best option - 1 or 2 - and it's likely that if they're using the money for something, they won't have 'spare money' to put to one side while still paying their minimum payments - not that would be enough to impact the difference between £110-115 in interest and a £150 fee)