What do you think?

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, minor amounts to start with until some 0% HP we have ends in 2 years, but then by about £150 a month or so.

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 accept 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?

After asking on the loan forum, someone reckoned I should put the overpayments into a savings account, as at least then I'll get some credit interest on them, and then just overpay the loan in big chunks every couple of years. If I look at the loan as it is, it is in effect a 0% loan for £17.5K now, not ideal by any stretch but I suppose at least I know what it left to pay back. Blooming loan people Grrrrr.

Thanks

Tracey x

Northernbird_2

I've had that miffed moment. I had a loan a few years ago and after paying it for 2 years I rang for a settlement balance, and it was the amount I had originally borrowed. Very upsetting. If you've not even started paying off the capital of the loan, I don't see any reason for you to shift it to another provider, as all you will be doing is paying further interest on the transferred loan amount (on which you have already paid interest). Put the extra money into a savings account for the time being.

How a loan works varies from provider to provider, so Egg calculate interest daily, and you can make overpayments that make actually make a difference. Apparently Lloyds TSB also do the same.

HSBC load up the loan at the outset. I'm not sure about other providers.

Hope this helps.

mountainofdebt

Personally speaking I was going to offer the same advice as that already given on the loans board.....put the spare cash into a savings account until you can pay off the loan entirely.

In two years time you will be into year 3 of the life of the loan and by then (assuming all goes to plan) every month you will be effectively paying 2 months premium each month so, should be able to have paid off/saved enough to pay off the loan in a total of 6.5 years and not 10.

Obviously the more you can save, the quicker the loan can be paid off.

Can recommed ING and as their interest rate is 4.75%, its not that far below the interest rate you're paying on the loan.

Addicted2Chocolate

all the loans i have ever seen (and seen thousands in work) have the interest front loaded in the same way....

mountainofdebt

But isn't it the case that for loans from May 2005, the max penalty that can be charged is a couple of months interest of a loan paid of early whereas before the dreaded rule of 78 comes into play, and hence why the OP will get hit with a large early settlement figure?