Bank loan advice

Wanting a loan from a bank for something shiny and sparkly in these cash strapped times?. An associate of mine did, who we shall refer to as Mr Tim X from now!. Mr Tim X wanted a loan for £2,000, but turned out in the long term it was cheaper for him to take a loan out for £10,000!.

Normally banks lend money to you at a lower APR rate if you you borrow more money. For example; Natwest at the moment will charge you 21.5% for a 1 year loan of £2,000. They would also charge 8.9% for 1 year loan of £10,000.

Now the trick to this is that the moment the loan is taken out, Mr Tim X paid back £8,000, leaving himself with the original £2,000. Paying back the rest as soon as possible meant he paid less overall on the £2,000 (including I presume any early settlement fees).

With something like this, Mr Tim X could have also exploited the premium accounts that banks like to sell to its customers. In the example of Natwest, this is the 'advantage gold' account for £12.95 per month. With this account, you 'can' get lower rates on personal loans. Now the trick to using this is to sign up to it for the minimum amount of time possible - ideally only for the duration it takes to arrange the loan. Once the loan is arranged and in your bank account, cancel the premium account!. In order for this to be effective is that the cost of the premium account needs to be less then the total cost of the extra percent on the loan you would have without the account.

If you are going to try and use this information to your own advantage, then be sure you get all the numbers down. Including, Early settlement fees, cost of premium accounts, APR for loans, monthly payback.

If nothing else, this should provide some food for thought!.