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11-14-2012 03:46 PM - edited 11-14-2012 03:47 PM
@credit314... the OP in this case has already applied and has been approved for the card. To edit a post feel free to click the arrow at the top right of the box and choose edit reply. Constructive; detailed comments are always welcome
11-14-2012 04:32 PM
I have a difficult question that I can not figure out for all of you:
I decided to apply for this CC at my credit union and got approved for $3,000.
At the same credit union I have a loan at 10.8% with a payoff of $2,380.
If you saw my before post, the cash advance interest rate is 6.65%, same as purchases as well as balance transfers, with absolutely no fee for doing so.
Would it be beneficial for me to take a cash advance of $2,380 off of the card in order to pay off this loan?
I know cash advances accrue interest daily but I am having the hardest time trying to figure out the amortization schedule on what is more beneficial as to where I would pay less interest? Continuing the loan for $2,380 @ 10.8% with monthly payments being $211 and maturing on 10/21/2013...or taking a cash advance (with no cash advance fee) of $2,380 @ 6.65% and continuing to pay monthly payments of $211.
Any help would be greatly appreciated. Thanks!
PS - I talked to my loan officer at the credit union and she said that is a very good question but she could not amortize it as well so did not have an answer for me.
Well, in general a lower interest rate always wins. If you play around with a calculator, such as that on bankrate.com, that implies that you can pay off $2380 in 11 months, at a 10.8% rate, paying around $145 in interest, with a monthly payment of $210+some cents, roughly your 211. Doing the same at 6.6%, you could actually pay $205, pay off in 11 months, and end up paying about $85 in interest. If you keep paying the same, the savings will be more. So, if the balance transfer really is free, this is worth doing, even if a daily vs monthly amortization difference exists, the savings are sufficiently large to cover that.
11-14-2012 07:30 PM
11-14-2012 07:50 PM
For some reason, which I still need to disprove myself, I figured a cash advance accruing interest daily would end up being more over the course of the next 11 months then a payment with a grace period on interest. Eleven months of daily interest scares me but all in all if I can figure out how to do the math, may end up saving me!
And yes, the cash advance is completely free up to the credit limit and same APR (6.65%) as if I were to make a purchase. By far the best "credit card" I have, only minus a rewards program.
Well, compound interest goes as something like (1+rate/n)^n where n is the the number of times compounded. Doing a quick check, if you made no payments,
2300 (couldn't recall the actual balance) at 6.6% compounded daily would be $2456.91 after one year. If it were compounded monthly, it would be 2,456.48, so the compounding makes very little difference.
In contrast, 2300 at 10.8%, compounded monthly becomes $2561.07
So a big savings. Paying it down reduces the difference of course, but it is still there. Now you would have to do more precise calculations if the choice was say 6.6% compounded daily and 6.7 monthly, but 6.6 to 10.8 is a huge difference, and the naive view, go with the lower rate, works fine here.