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Dumb Navy Federal CLOC question

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Anonymous
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Dumb Navy Federal CLOC question

Question...

 

Financially does it make sense if you had a CLOC of 16% @ 10,000 (i do not) to use that to pay off say a 5000 loan at 22% interest?

Message 1 of 8
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Anonymous
Not applicable

Re: Dumb Navy Federal CLOC question


@Anonymous wrote:

Question...

 

@Anonymous does it make sense if you had a CLOC of 16% @ 10,000 (i do not) to use that to pay off say a 5000 loan at 22% interest?


Figure out the math.

 

One thing to keep in mind is your loan is not factored into relvolving utilization.  If you don't care so much about your scores and you are not going to apply for anything then you could take the score hit for higher utilization and paying off an installment loan.

Message 2 of 8
Anonymous
Not applicable

Re: Dumb Navy Federal CLOC question

well the way it calculates from the day it is used throws me off from doing the math on it. im not even sure i know every little way it works

Message 3 of 8
heyryan
Frequent Contributor

Re: Dumb Navy Federal CLOC question


@Anonymous wrote:

well the way it calculates from the day it is used throws me off from doing the math on it. im not even sure i know every little way it works


Well, 16% interest is less than 22% interest, so if by "make sense" you mean "save money" then it should. Smiley Happy  Depends on how long you want to take to repay the loan.

 

Let's say it takes you 2 years to pay off the $5K:
@Anonymous% payments are ~$260/mo and you're paying ~$1225 in interest.

@16% $245/mo and $875 in interest.

 

If it's paid off in a year, the savings drops from $350 to ~$165. 

 

If you can pay it off in a couple of months, then it probably wouldn't be worth the hassle.

 

Personally, I'd rather take a new account hit and save the money Smiley Happy

 

*(I just did monthly compounding, so daily or continuous would obviously change the #s)

Personal:

 
Business:


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Message 4 of 8
Anonymous
Not applicable

Re: Dumb Navy Federal CLOC question

thank you for the response its the "calculates starting from the day you use it" versus a credit cards grace period that i didnt get

Message 5 of 8
heyryan
Frequent Contributor

Re: Dumb Navy Federal CLOC question


@Anonymous wrote:

thank you for the response its the "calculates starting from the day you use it" versus a credit cards grace period that i didnt get


If you don't pay the balance on a credit card, you're essentially paying the same thing. The grace period is only applicable if you pay off the whole balance every month, otherwise you're paying interest on the existing balance + new charges until it's paid off. Here's what my NFCU Cash Rewards says for how they calculate interest:

"Navy Federal calculates interest charges on your account by applying the periodic rate to get the "average daily balance" of your account, including current transactions. To get the "average daily balance", we take the beginning balance of your account each day, add new purchases and cash advances, and subtract any payments, credits, and unpaid interest charges to give us the daily balance. Then, we add up all the daily balances for the billing cycle and divide the total by the number of days in each billing cycle. This gives us the "average daily balance".

 

Here's their statement about grace periods:
"We will not charge you interest on purchases if you pay your entire balance by the due date each month" (Does not apply to cash advances, balance transfers, and convenience checks.)

 

 

This is what the CLOC is doing - they're not giving you the chance to pay it off in a month w/o the interest. If you put $5K on it at 12% for 30 days, then pay it off, you'll pay ~$50 in interest, whereas a credit card you'd pay nothing because you'd be within the grace period.

 

Hope that helps clear it up a bit Smiley Happy

Personal:

 
Business:


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Message 6 of 8
Anonymous
Not applicable

Re: Dumb Navy Federal CLOC question


@heyryan wrote:

@Anonymous wrote:

thank you for the response its the "calculates starting from the day you use it" versus a credit cards grace period that i didnt get


If you don't pay the balance on a credit card, you're essentially paying the same thing. The grace period is only applicable if you pay off the whole balance every month, otherwise you're paying interest on the existing balance + new charges until it's paid off. Here's what my NFCU Cash Rewards says for how they calculate interest:

"Navy Federal calculates interest charges on your account by applying the periodic rate to get the "average daily balance" of your account, including current transactions. To get the "average daily balance", we take the beginning balance of your account each day, add new purchases and cash advances, and subtract any payments, credits, and unpaid interest charges to give us the daily balance. Then, we add up all the daily balances for the billing cycle and divide the total by the number of days in each billing cycle. This gives us the "average daily balance".

 

Here's their statement about grace periods:
"We will not charge you interest on purchases if you pay your entire balance by the due date each month" (Does not apply to cash advances, balance transfers, and convenience checks.)

 

 

This is what the CLOC is doing - they're not giving you the chance to pay it off in a month w/o the interest. If you put $5K on it at 12% for 30 days, then pay it off, you'll pay ~$50 in interest, whereas a credit card you'd pay nothing because you'd be within the grace period.

 

Hope that helps clear it up a bit Smiley Happy


thank you for the reply. what throws me off is when i used it, i paid it 4-5 days later and i didnt have any interest accrued on the amount i took out which i thought i would have

Message 7 of 8
Anonymous
Not applicable

Re: Dumb Navy Federal CLOC question


@Anonymous wrote:

@heyryan wrote:

@Anonymous wrote:

thank you for the response its the "calculates starting from the day you use it" versus a credit cards grace period that i didnt get


If you don't pay the balance on a credit card, you're essentially paying the same thing. The grace period is only applicable if you pay off the whole balance every month, otherwise you're paying interest on the existing balance + new charges until it's paid off. Here's what my NFCU Cash Rewards says for how they calculate interest:

"Navy Federal calculates interest charges on your account by applying the periodic rate to get the "average daily balance" of your account, including current transactions. To get the "average daily balance", we take the beginning balance of your account each day, add new purchases and cash advances, and subtract any payments, credits, and unpaid interest charges to give us the daily balance. Then, we add up all the daily balances for the billing cycle and divide the total by the number of days in each billing cycle. This gives us the "average daily balance".

 

Here's their statement about grace periods:
"We will not charge you interest on purchases if you pay your entire balance by the due date each month" (Does not apply to cash advances, balance transfers, and convenience checks.)

 

 

This is what the CLOC is doing - they're not giving you the chance to pay it off in a month w/o the interest. If you put $5K on it at 12% for 30 days, then pay it off, you'll pay ~$50 in interest, whereas a credit card you'd pay nothing because you'd be within the grace period.

 

Hope that helps clear it up a bit Smiley Happy


thank you for the reply. what throws me off is when i used it, i paid it 4-5 days later and i didnt have any interest accrued on the amount i took out which i thought i would have


Really? I just used my CLOC for the first time yesterday and the balance is nearly 1.5x the navchek advance. :/

Message 8 of 8
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