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20k Graduate Loan Fixed or Variable

  • 03-09-2014 6:30pm
    #1
    TeamJesus
    Registered Users Posts: 61 ✭✭


    Hi,

    I'm applying for a 20k loan to pay off college / get my first car etc (all very sensible) and because I have a graduate account the interest mentioned by my bank is 8.93 (5yrs) - this looks good to me but I have a question:

    This a a variable rate... so can the bank jack up the rate when my graduate account expires? Or does variable mean only the economy can affect the rate and it's out of the banks hands?

    Also i might be able to pay it off early as I'm hoping that my salary will go up a good bit over the next 5 yrs... I know there's a penalty for doing this if it's fixed rate... but maybe I could just save instead of paying off early?


Comments

  • #2
    mruser2014
    Banned (with Prison Access) Posts: 96 ✭✭mruser2014


    Seems a lot to be spending on your first car?


  • #3
    TeamJesus
    Registered Users Posts: 61 ✭✭TeamJesus


    mruser2014 wrote: »
    Seems a lot to be spending on your first car?

    It's for my first car, paying off college (12k) and braces


  • #4
    tenifan
    Closed Accounts Posts: 523 ✭✭✭tenifan


    Banks can up the rate whenever they feel like it.

    I'd be very careful using the credit union too as there are too many stories of people being charged 7% interest on a €10,000 loan with their $7,000 savings used as "security", and the credit union refusing to offset one against the other. E.g. Dundalk credit union.

    I'm not fully sure how the fixed rates work. I always assumed you were only charged a certain percentage as a premium for early repayment, but some people tell me you have to pay the entire interest balance (which doesn't make sense).

    Either way, I'd probably just go with the variable loan for the sort of flexibility you want. In the short term at least, variable rates will be lower than fixed rates.


  • #5
    amen
    Registered Users Posts: 2,781 ✭✭✭amen


    If you have a variable rate loan the interest rate change (up/down) but most likely up. You will be notified 30 days before the rate changes. You can pay off the outstanding balance on the loan at any.

    If you a fixed rate term loan the rate does not change. If you attempt to pay of the balance early you will owe the entire amount outstanding.

    Take a 20K loan at 9% varaible over 5 years. Including interest you will pay back approx 24K if you take the full 5 years to pay and assuming the rate does not change. Two years into the loan you have paid off 4K owning 16K plus interest. If you have lump sum of 16K you can pay off the loan and walk away saving threes years interest (may 2.5K).

    Of course if the rate goes up you pay more interest.

    Take a 20K loan at 9% Fixed (fixed rates though are normally higher as the bank missed out the change to make more money at they cannot increase the rate) over 5 years. Including interest you will pay back approx 24K.

    Two years into the loan you have paid off 4K owing 20K. If you have a lump sum of 16K and pay it to the bank you still owe them the 4K.

    I'd get the variable rate loan.
    but maybe I could just save instead of paying off early
    having savings while pay interest of nearly 10% on a loan makes no sense. You will be lucky to get 1% interest on savings while you are losing 9% on the loan.


  • #6
    TeamJesus
    Registered Users Posts: 61 ✭✭TeamJesus


    Thanks so much for this advice amen and tenifan!

    Amen I see what you mean about paying off faster being better than saving at the same time. Also I wasn't 100% about the interest being less for a variable if I pay the loan off early so thanks for clarifying!

    I think variable is the way to go for flexibility so :)


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