Early Settlement of Personal Loan

josieloves

Having learnt the hard way and gotten into a bit of trouble with credit cards and consolidation loans, with the help of this site and my patient hubby, I have worked my butt off to try and get all my debts cleared.

I am exactly half way through the term of my loan. I have been continuing with my monthly repayments and saving every additional penny in a high interest savings account so that I'm able to settle early. My loan provider advised me this would be the best way as over paying each month would not have any effect on the overall interest whereas if I settle early, then they would recalculate this.

Having finally saved what I thought was enough to pay off the outstanding debt, the loan provider advised me that even though I am settling my loan 3 years early, I still have to pay 83% of the total interest that I would have paid had I continued paying the loan for the entirety of it's term. With my type of loan, I paid all the interest off first and then started paying back the actual loan so because i'm settling early, they have to recalculate the interest over the period so far. I was hoping it might be just over half given thats the time I've paid it off but obviously this was far too optimistic.

This seems so unfair to me especially as I've worked so hard to get all my debts cleared. I am planning on reading the T&C's more thoroughly to check whether I knew about this but I wondered if anyone else had experienced similar when trying to settle a loan early? Anyone else out there got stung for more years interest than they actually had the loan for??? And more importantly, is this legal and is there anything I can do about it?

standupguy

They advised you correctly over not overpaying each month and saving the extra instead.

However, 83% of the interest at the half way stage in the loan does sound high?

You do pay a lot of interest in the early part of the agreement as that is when the loan is at its highest so it is not as simple as half way through the loan = half the interest.

I am wondering if they have added on any charges that you are unaware of?

May be best to ask them to send you a full statement of account along with a written settlement figure so that you can see if there are any discrepancies?

sdooley

Many lending companies (is this First National?) will have two figures:

Loan balance (e.g.) £3,000
Settlement figure (e.g.) £3,500

What some good customer service people may tell you is that if in the example above you were to overpay rather than settle the loan, you might get the following:

Overpay £2,500

new balance £500
new settlement figure £650

saving you £350 if you then later settle

It depends on the interest calculation method they use, but worth a try.

CLAPTON

Ask for a written settlement figure... the loan advisor may or may not be correcct.

If you like to give more details maybe we could help more effectively

when was the loan taken out
how much
APR
over what period
monthly repayment
any PPI
any payment free periods / missed payments/

jonesMUFCforever

I think the 83% figure is fairly accurate.

You borrow a set amount say £10k - interest on £10k is a lot more in first 6 months of the loan than the last 6.

josieloves

Basically, I'm 36 months into a 72 month loan for £10,000 with a fixed rate of interest of 6.9% APR for the duration of the loan. No payment breaks and no PPI.

According to my loan provider, the total remaining on my loan if i continue to make monthly repayments for the next 36 months is £6503. However, if i settle today, I have to pay £6087.

So i'm only £416 better off by paying the loan off 3 YEARS EARLY! That seems crazy - not that i'm trying to belittle £416, it's a lot of money but I thought i would save more than that for paying it back in half the time.

However, I'm willing to accept that it could be my maths skills that are wrong and not my loan provider hence why I'm posting here....

jonesMUFCforever

You as yet have not paid any outstanding interest on future payments have you?

sdooley

If you were to borrow £6,087 over 3 years at 6.9% you would pay approximately £630 interest. So your £416 reduction in interest looks about £214 short on a simplistic basis. But the £630 is the absolute maximum you might get back - if your interest is calculated in anything other than the most generous (straight-line) basis, you will not get that much back - also if you are a bit further on in your loan by the time it is settled (e.g. 34 months from the end rather than 36) you would not expect the full £630 back.