Credit Union loan: more expensive because I have to keep my shares?

A

Aodhán

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I've €7k in savings in my CU and would like to get a loan for €25k. The CU says no problem but that they'd charge me interest (at 7.78%) on €25k rather than on €18k, and the €7k would remain in my savings account.

This, to be paying interest on €7k that's actually my own money, sounds like a bad deal. Would it be cheaper to get a loan from at bank at this rate?

What is the cheapest way to borrow €25k? It's for completing my house refurbishment and as I just bought the house/got the mortgage my bank will only consider a mortgage top-up after a year. Therefore, I need to find something in the meantime.
 
That is why I am trying to get a KBC loan, the APR charged by Credit Unions is higher. Mine is 7.8%, whereas Drogheda is circa 6% To cap it all you have to take out more as you have to have a certain amount in your credit union account.

I suggest open a KBC account and get your salary paid in, then apply online for a loan.
 
With the Credit Union loan there are no penalties for paying off the 25k loan early.. so when the balance of the loan drops to 7k or below you can then use this saving to pay the loan off right away. So its not really like paying interest on that 7k. You are paying on the 18k. But whatever you go for, don't forget about HRI that allows you to claim a tax credit of 13.5% of the total cost of home improvements. You claim it back over 2 years (instead of lump sum),, but still money back from the Tax man.. Personally I would stick with the Credit Union as the repayment options are more flexible, but yes your 7k would be locked away until you lower your loan balance..
 
willyfones said:
With the Credit Union loan there are no penalties for paying off the 25k loan early..
Click to expand...

The Credit Unions keep making this point, but it's misleading. No lender charges a fee for early repayment of a variable rate mortgage. They are not allowed to under the Consumer Credit Act.

They do charge early break fees on fixed rate loans.

willyfones said:
So its not really like paying interest on that 7k. You are paying on the 18k.
Click to expand...

Where are you getting this from?

They will charge him €1,945 interest (7.78% of €25,000 ) and pay him zero on the €7,000 savings.

This is an effective APR of 10.8% (€1,945/€18,000)

And the APR gets higher as he pays down the loan but leaves the shares intact.

For example, when the loan is down to €15,000...
He will pay an effective APR of 14.6% ( €1,167 on a net loan of €8,000)

Brendan
 
Good points above Mr. Burgress,

I suppose the question is whether or not all borrowers will qualify for a loan from KBC ?

Assuming they won't, some may still qualify for a Credit Union loan because they "look at things differently", but obviously don't provide the most competitive deal :)
 
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