How to avoid early repayment fees on loans

matthew6476

When I worked for the "Bank", I used to sell loans and the like (I have since got out of that game) and got a few tips on how the banks work, one of which is how to avoid paying early repayment fees.

This is where the bank try to recoup as much of the interest that they will lose by you paying off your loan early. Some banks cap it at around £200, but this is still £200 too much in my book.

The way to beat this nasty trick, is if you have a lump sum to clear your loan with, pay this amount in to the loan MINUS one month's repayment, which will be taken at the usual time. When the next (and final) payment comes out, the loan is finished early, but as they claimed the money via Direct Debit, you did not finish the loan early, and no fee is incurred.

This will mean that not only will you save loads in interest in paying off your loan early, but you will not have to pay extra for the privilidge of doing so.


For example if you have £3000 outstanding on a loan, and you have this to clear it, the bank will charge you up to £200 extra.

If you pay £2900 off the loan (assuming the payment is £100 pcm) then then DD will take the last £100, only costing you the actual £3000 outstanding on the loan.

Hope this helps!

MORPH3US

So I assume there is an option to just pay a lump sum off a loan without actually settling the full amount?

How do I do this, just ask the bank how I pay a lump sum off?

M

matthew6476

The bank should let you just pay off a lump sum off the loan, which in the bank I worked in, you could do over the counter. The idea was that you could make regular overpayments to the loan. Just ask them how to make a lump sum payment and they will tell you.

Good luck!!!

Matthew

beeniemac

Thanks for this, I have just contact my bank to see if there are any penalties in just paying a lump sum off, and not clearing the loan

Chop

Posted this on another thread but got no answers, so will try again here.....although I think you have actually given me the answer already!


I have £1200 left to repay from a £10k graduate loan (I've nearly paid it all back - woohoo!). I pay £150 a month so am offically due to finish paying it back next July.

However, I have enough money in my ISA to pay if off early. So, should I?! Or should I pay £1000 and then just let it come to it's end naturally to avoid fees?!


So, I guess I should just pay off a lump sum then? What a sneaky trick!

ceejam

I've got a loan that that wouldn't work with!

It's a fixed rate loan from RBS, currently the balance is £13k, but early settlement figure is £11k. If I make a lump sum payment, it goes towards the £13k, as the interest is calculated and added to the loan at commmencement?