Probably the stupidist question in the world.

KAD

I currently have 1 year left to pay on a personal loan, however I now have some cash to enable me to pay it off early - and this is where the stupid bit comes in - would I be better off doing this and use the £200 to overpay my mortgage or leave things as they are.

Please be kind x

SmlSave

I have to say that I wouldn't be sure either! I'd probably personally pay the loan off but look forward to seeing what the others say.

mark13

I'd pay the loan off.

darcyvuqua

personnally i would pay the loan off thats something less to worry about each month/week

CLAPTON

in general and all things being equal (i.e. no fees for early repayment etc) then pay the debt with the highest APR

Coupon-mad

KAD wrote: »

I currently have 1 year left to pay on a personal loan, however I now have some cash to enable me to pay it off early - and this is where the stupid bit comes in - would I be better off doing this and use the £200 to overpay my mortgage or leave things as they are.

Please be kind x

I am kind I hope!

Where does the figure of £200 come from? I understood from your OP that this is the amount you are hoping to save by paying off the personal loan early, is that correct? If so, have you asked the personal loan company for a redemption figure for the loan, if not you may be surprised as it may well be more than you think.

I am pretty sure you won't save the total of all the repayments which would have been due over the year. Sorry if this is obvious but it's not clear from your OP whether the £200 is your assumed saving of 12 monthly payments, or a definite figure based on a redemption statement for the loan?

Personal loans being repaid early are sometimes subject to ALL of the interest which would have been applicable over the original term, being added to the repayment figure. So it's often higher than you might think.

If you have asked the personal loan company for a redemption figure and would indeed save £200 by paying it off now then maybe that's the best plan for you. Personally, I would pay off the loan if it would save a definite £200 and I could afford it (e.g. if you are sure your job is stable and you are not likely to need the money you mention, as a buffer in case of a sudden loss of income or whatever).

I am not sure I would use it to pay £200 off my mortgage though, it would hardly make any difference would it? Not sure about that side of things, maybe someone else can add some more advice?

angelavdavis

Most of the time loans have already got all the interest added to it (particularly if it is a fixed rate loan), in which case, settling it won't save you any interest - it will just mean you physically don't have to shell out every month any more.

I know I had a loan that was like this, in the end I paid it off, just because I wanted the feeling of not owing anyone anything - but it didn't actually save me a penny sadly. It was quite nice seeing my credit amount going to zero on experian though!

I would also check the small print on the loan to ensure that there are no hidden penalties for settling early.

dimbo61

Have you got any other emergency savings ?
Is your job safe ?
Contact your lender ( for the loan ) and check if paying off the loan early will save you money.
If not you may as well keep the money in a savings account earning you some interest ( even if only 2/3 % ) rather than give it to the loan company.
If you cant save money by paying off the loan early you could always pay a lump sum off the mortgage ( again if allowed ! )
MORE THAN ONE WAY TO SKIN A CAT !!

BadgerMan78

OK, a similar point but my circumstances are different and I'd really appreciate your thoughts on this.

I've saved £14k to pay off a loan which, as far as I understand from the paperwork, has no early repayments charges. This is at 8.3% APR (with a rate of interest on the credit of 7.74% APR) and is currently costing me £350 per month with a further 42 months (3.5 years) to go.

However, my mortgage is +.99% with First Direct so has now dropped to 2.49% (or still just 2.99% if they don't pass it back on). My mortgage is only £70k over 19yrs but with the rate so low I'm planning on significantly overpaying each month and have worked out that overpayments of around £400 per month could see this reduce to 8 or 9 years. Would it be of benefit if I were to make one huge overpayment on my mortgage next month of the full £14k I've saved or should I pay my car loan off with this, so that once this is cleared I can focus on making overpayments on my mortgage of around £600 per month?

I can't seem to get my head around which will save me more money in the long term and would really appreciate anyone's thoughts and advice.

Thanks.

sarahs999

Can you overpay that much - have you checked there are not clauses in your contract that stipulate, for example, that you can only overpay by 10% in a year (that's in mine). Other clauses count large repayments as early redemption. Just thought you should check.

BadgerMan78

No, don't think so. The FD mortgage paperwork says you can make unlimited overpayments so I think this should be fine.

Excellent advice though Sarahs999 had this been the case.