Length of loan if paying off quickly ?

deejaybee

Hi all,

Barclays have been regularly emailing me, advising how much i could borrow - at a decent rate ( 6.1 % ) Have had a current account and mortgage with them long term.

I am considering applying, as a short term loan would be useful at this time.

Does it make any difference to potential settlement figure ( would pay off within first 2 or 3 months )

if the initial loan is over 24 months /36 months / 48 months / 60 months ?

*** obviously the initial monthly payments would differ depending on term ***     I am more thinking about the potential interest ( depending on term ) and how it might affect settlement figure ( if it does ) ?

Alternatively i could utilise existing credit card and just pay the minimum for a couple of months, but would be caned by the high interest during that time....

Thanks for listening !

Brie

Well, stating the obvious, if the interest rate was the same on each and the amount borrowed was the same then the shorter the length of the loan the lower the interest.  And obviously the longer the term the smaller, and therefore more affordable the monthly payments would be. 

Interest for the length of the loan isn't loaded up front so you should just have to pay the amount of outstanding principle if you want to pay off early unless there's an early settlement fee.  That should be plain in the information provided prior to you taking out the loan.  

deejaybee

Thanks Brie

Brie

And just to put some numbers on it (because I do love a bit of calculating....)

If you bought something on your credit card for £5k

- And paid the minimum on the card for 2 years, assuming 25% apr and a minimum payment of 2.5% 
- You would still owe over £4500 and have paid nearly £2400 in interest.  Monthly payments would start at £125 and drop to about £113

- Or had a £5k loan at 6% to clear the card and paid it off over 2 years,  paying £225 a month
- You would owe about zero and have paid a total of about £313 in interest.
 - if you paid this off after 1 year the remaining balance would be about £2745 and you would have paid £233 interest

- Or had a £5k loan at 6% to clear the card and paid if off over 3 years, paying £155 a month
- You would owe about zero and have paid a total of about £466 in interest.
 - if you paid this off after 1 year the remaining balance would be about £3534 and you would have paid £256 interest

CliveOfIndia

deejaybee said:

Does it make any difference to potential settlement figure ( would pay off within first 2 or 3 months )

if the initial loan is over 24 months /36 months / 48 months / 60 months ?

Purely in terms of an early settlement figure, the only thing that would make a difference really is how much of the original term is remaining.  If there's more than 12 months left they can charge an early settlement fee of up to 2 month's interest.  But they can only charge up to one month's worth of interest if there's less than 12 months remaining on the loan.

It's worth checking the T&C's - those early settlement amounts are the maximum they're allowed to charge.  You may be lucky and find they charge less than they're legally allowed to - though I'm guessing that's probably unlikely.

The obvious - and real MSE - question is, if you're going to be able to repay the loan in 2 or 3 months, is it not feasible to just save up for 2 or 3 months beforehand, and delay the purchase?

deejaybee said:

a short term loan would be useful at this time.

Alternatively i could utilise existing credit card and just pay the minimum for a couple of months, but would be caned by the high interest during that time....

An alternative might be to see if you're eligible for a 0% purchase card.  That would be ideal for a short-term loan, as long as you're absolutely certain you'll be able to clear it in full before the promotional rate expires.  And assuming that whoever you're buying whatever it is from will accept a credit card.
.

MallyGirl

or a low fee money transfer card with the same provisos