Help needed with calculations to decide if to save or pay off loan(s)

[Deleted User]

Hi,

I'd really be grateful for help with these numbers...

I've got a choice between paying off (or at least towards) 1 or even both debts or, saving the money in a cash ISA. I know people say pay debts off first however I'd like to see how much I'd gain or lose from paying/not paying them off.

A few details:

HSBC Grad loan - Current balance: £7077.44 with 32 months remaining. APR: 8.9%, paying back roughly £221 a month
Cahoot loan - Current balance: £5039.04 with with 36 months remaining, APR 9.7% paying back roughly £161 a month

I was considering puting the money I've got (£3600) into a cash ISA at 6.25% AER fixed which, after three years (assuming we go with 6.25%) would give me £4318.07

Can someone help me to see what's the best option for my money. Also if possible please include your working's out as I like maths

If you need anymore info please ask.

Thanks

[Deleted User]

Doesn't it matter the 2 loans % are APR, the ISA is AER?

Can someone elaborate with calculations and figures etc?

Thanks

[Deleted User]

albertross wrote:

This assumes that the loans allow penalty free early repayment

I think both loan have no penalty from looking at the documentation as they don't specify any figures or percentage's I'd have to pay otherwise.

[Deleted User]

To clarify I was intending to save the £3600 in a cash ISA for 3 years or, if more profitable pay a loan off and then save the savings from not having to pay the loan off into a regular savings account. Ultimately to save the same amount 3 years later as if I'd just left the £3600 alone in an ISA.

Lokolo

If you pay more interest on your debts they are your priority.

8.9% of £3600 is £320 -- how much £3600 is costing you to borrow
6.25% of £3600 is £225. -- how much you can gain from £3600

So with the £3600 you are paying more interest than you are getting. So pay off your debt.

[Deleted User]

poorandindenial from the DFW board has advised of https://www.whatsthecost.com and what a great site it is too! Now time to crunch some numbers

[Deleted User]

For the below I've used http://www.whatsthecost.com/snowball.aspx

The remaining balance on my Cahoot loan is £5039.04. Not using the £3600 would leave it paid off in April 2011 with a total of £742.00 in interest paid at that point.

With using the £3600, it'd then leave it paid off in February 2009 with a total of £49.00 in interest.

Both times paying the same amount each month of £161 (apart from the one off payment on the second calculation)

If I then used the money I would have spent on the Cahoot loan to pay extra on the HSBC loan then the following happens:

The remaining balance on my HSBC loan is £7077.44. Not using the £3600 (for the Cahoot loan) would leave it paid off in May 2011 with a total of £969.00 in interest paid at that point.

With using the £3600 (on the other loan then use the money I would have spent on that, on this loan), it'd then leave it paid off in May 2010 with a total of £756.65 in interest.

So in total, interest saved would be £1,699.00 - £805.65 = £893.35

If I the carried on putting aside the monthly repayment figure (£221 + £161 = £382) which hasn't changed throughout this, for the remaining months of what would have been the last repayment, e.g. May 2010 -> Apr 2011 then I'd save £4584

I originally suggested putting the £3600 in an ISA for 3 years, it'd then grow to £4,318.07

So am I right in thinking after all that I'd be £4584 - £4,318.07 = £265.93 better off?

nicko33

Deleted_User wrote: »

So am I right in thinking after all that I'd be £4584 - £4,318.07 = £265.93 better off?

Nearly, that £4584 would also attract interest as you save the £382 each month. It would become £4743.84 in a 6.5% ISA (if it rolled over between tax years so you did not exceed £3600/year)