Savings vs loans interest help

mbigstar

Hello just looking for some advice and to see if ive made a mistake in my thinking. So i luckily have 26000 that i want to use for a new driveway. I bank with first direct and it says the interest on my savings account is 4% if i dont withdraw that month, so does that mean its 1040 a month in interest? If so, first direct offer a bank loan and for 26000 over 4 years at 6.4 percent they want 613.31 a month. So does that mean i could use the 1040 a month in interest, get a loan use the interest to pay the repayment and be 400 pounds ish up a month or have a i made a mistake in how interest works in a saving account. Thank you

Beddie

Sorry to break it to you, but the interest is 4% a year on the savings, not per month.

eskbanker

4% is the annual rate, even though it's actually paid monthly, so in any month you'd receive about a twelfth of that rate, i.e. just over 0.3%.

Obviously there's no point in borrowing at 6.4% while earning at 4%, so use your savings....

Mark_d

4% AER is an annual equivalence rate.  With £26k you would get roughly 26000*0.04/12 = £86.67 each month.  This is a rough estimate because it doesn't account for compounding.

If you borrow £26k then every month you will pay interest on the outstanding balance (ie.  balance * 0.064/12) plus an amount of capital repayment.  So your first month might be 139 interest + 474 capital.  Your next month might be 136 interest + 477 capital.  Hopefully you get the idea.

Albermarle

So i luckily have 26000 that i want to use for a new driveway.

A very expensive driveway !

eskbanker

Albermarle said:

So i luckily have 26000 that i want to use for a new driveway.

A very expensive driveway !

Perhaps OP lives here?

DjangoUnchained

maybe he lives there and can afford to if his savings earn him 4% a month.