Should we try to change this loan?

exessexmum

We have a £15,000 loan with Northern Rock at 5.6% over 10 years that has been running for a year. Payments are £162.76 a month, which we have been paying fine with no defaults.

I am looking at reducing our debt now and using the snowball calculator was planning on making some overpayments.

We rang Northern Rock for an up to date statement and the current balance is £17578.08 :eek:

On further investigation it appears the interest is front loaded and would only be recalculated on full settlement, therefore overpayments will reduce the term of the loan, but not the interest we will pay.

I'm slightly miffed about this, to say the least.

So:

1. Are there loans in which the interest is worked out daily? Or even monthly?

2. If so, would it be best to get a settlement figure for the NR loan and take out a daily interest loan for the same amount and then transfer the borrowing?

3. Or should we just accpet that we are going to be paying off just interest without touching the capital for the next year or so, just making the overpayments as planned but have it take us an extra 2 years to clear the loan?

Thanks

Tracey x

rchddap1

One other option would be to put the 'overpayments' in a savings account. Then you would get paid interest on the 'overpayments' allowing you to pay off a larger chunk when it gets large enough. If that makes sense.

exessexmum

So is it better to look at it now as a £17.5K loan at 0% then? Just !!!!!! off that its going to take us longer to be clear of it.

matthew6476

I would get some facts and figures first. Lloyds TSB work out interest daily, and allow overpayments, and tend not to frontload the interest.

Bear in mind that if you reduce the term, you generally reduce the interest paid in the long term. On your loan, I suspect the interest is more costly because you are paying over a long term, and looking at the cost, I would be suprised if you didnt have loan protection on it as well.

Certainly look into getting a cheaper loan, or one where interest is calculated more in your favour than the banks'. Get some quotes, and look at how much interst you would pay over the whole term of the loan, and go for the cheapest.

Matthew