Free Money (maybe ?)

I don't think so. It may be *calculated* daily, but is unlikely to be compounded daily, and even if it were, your arithmetic doesn't quite add up. I think what you're doing is (365.0585/365)^365 but that gives only 6.024%, not 6.08%. I expect what *they* are likely to be doing is (12.0585/12)^12, which gives 6.009%.

Yes. The £811 cost of credit is for an average balance of about half the amount borrowed, since you're paying it back during the year, not at the end of it. I make the APR about 6.1%.

If you can make a profit by repaying a 6.1% loan using a 6.01% investment, you deserve a medal.

By the way, I should have added that if only you could find a more expensive mortgage loan provider, charging perhaps 7%, well, then you could be onto a real winner!

:-)

wrote

Don't be daft - listen to Ronald, he's right. Alternatively, don't listen to him & waste some time doing something which will *lose* you some money!

Tim, Ronald,

Not wishing to drag this thread out unduly, but...

Offset accounts aside, if you look at the moneysupermarket loans section

Bank of Scotland are definitely charging only £811.04 on a 12-month £25k loan. This is an interest rate of 3.24%, isn't it ? Am I missing something ? Cheers

Nick

Yes, you're missing the fact that (presumably) the loan is being repaid over the year. Thus they're not loaning you the full amount of

25k for the whole year, on average they're lending you half that amount.

Either that or I'm off to borrow somem money from them! :-)

No it isn't, it's an interest rate of 6.1%.

Yes you are. It *would be* a rate of 3.24% if it were really a 12 month loan, i.e. one in which you got to keep the whole £25k for the whole year. If that were allowed, would you be able to invest the whole money in the

6.01% One account for the whole year, thus saving £1525 of debit interest.

But the terms of the unsecured personal loan involve you paying back the loan in monthly instalments, which means that, averaged over the whole year, your loan balance will be on average about £13k, and your investment balance likewise will be only £13k and not £25k, so you will only be able to "earn" (save) about £793 on the mortgage.

You must have mis-programmed your spreadsheet. Suppose you put the £25k into the One account at month 0. At month 1, this will have "earned" interest at 5.85%/12, i.e. £121.87, but you now have to find £2150.92 for your first UPL repayment. This means your investment in now no longer at £25k, never mind £25121.87, but is down to £22970.95. So the amount if interest you earn at month 2 will be less than £121.87, it will only be £111.98, etc.

By my reckoning, come month 12 you'll be in the red by £12.11. This, as you'd expect, is approximately half of (6.1%-6.01%) of £25k.

wrote

If they'll lend people 25,000 at the start of the year, then have no repayments until 12 months later and take just

25,811.04 at the end of the year - then I'll take *two*!!

But then, the OP stated that the payments are "2150.92 a month" - so I guess not, and I wouldn't try that little "trick"!

Ronald et al,

Thanks for your patience with this question. I knew I was wrong, I was just trying to prove it to myself !!!

On a final workthrough, I cleaned up the spreadsheet a bit and (surprise, surprise !) my workings now get me to a LOSS of £10.85.

Oh well, it was a nice little dream for a few minutes this morning...

Cheers

Nick

Without a hint of irony, Ronald Raygun astounded uk.finance on 04 Feb 2005 by announcing:

Or if you can get the AA 5.9% loan...

"Ronald Raygun" wrote

The way to make money on an offset mortgage is

1/ don't have too big a mortgage 2/ do have loads of credit cards with 0% balance transfer offers, one of which must be an Egg card. 3/ route the credit limit of the cards via balance transfer to Egg, and thence into your current account and ultimately your offset mortgage account 4/ as each 0% deal expires, apply for a new card with a 0% offer and balance transfer individual card debts to new cards 5/ if you can't get enough new cards at 0%, give them their money back; you've had a good run for your money.

Depending on what you earn and who you apply to for cards, you can obtain anything up to about 70,000 this way, but the long term impact on your ability to obtain credit is unknown.

Truly the ways of financiers are mysterious ! Compare and contrast the following quotes for 25k over 12 months without PPI:

- The Bank of Scotland "6.1% APR" loan and

- The AA loan "5.8% APR" loan (enter principal and amout)

The first costs a total of 811.04 and the second 1023.68. Go figure !

Nick

wrote

The first *is* 6.1% APR (assuming normal monthly payments etc).

However under the latter, if there are 12 monthly payments, each of 2168.64, at monthly intervals in arrears - then the APR is more like ... * 7.7% *.

Tim,

Yes, that's what I made it too. But the AA site is explicit, as follows:

< QUOTE FROM > Your illustrative monthly repayment £2,168.64 Total repayment £26,023.68 APR 5.8% < END QUOTE >

A £1023.68 cost of credit on £25k over 12 months sure ain't 5.8% !

Nick

Tim wrote:

wrote

You forgot to mention that repayments don't start until **three** months after the advance. It makes all the difference! APR *is* actually 5.8% - the underlying rate being just under 5.85% per year.

wrote

But then the loan from AA isn't paid off after 12 months - it takes 14 months!!

Tim,

Well spotted - that little gem was tucked away in the T&Cs and I missed it. Funnily enough, the repayment delay works in my favour, turning a £10.85 loss into a £32.06 gain over the year.

Probably not worth doing though - it's a tiny profit and the risk is that if the MPC lops a 1/4% off the base rate (and the One Account follows suit), I'm looking at a full year loss of £12.54 again.

Now, I wonder if I could get a dollar loan nice and cheap....???!!!!

Nick