Paying off a loan early

joanneinwonderland

I am considering paying off a loan with Alliance and Leicester early (if I save up the cash quickly enough). I read the website and it says:

You said:
What happens if I want to settle my personal loan earlier than agreed?

Our answer is:
You may be charged an early settlement fee of one month's interest if your term was for more than 12 months. Please follow this link to contact us about repaying your loan early.

The term was for 24 months so I will have to pay the early settlement fee. So would I repay the remainder of the capital I owe plus a months interest.

Total amount borrowed = 4000 over 24 months
Monthly repayment = £190 per month
Capital per month = 4000/24 = £167
Interest per month = 23

With 13 months to go if I were to pay off now I would pay:

(13 x 167) = 2171 + 23= £2,194

Am I right?

Ta Jo xxx

CLAPTON

No,

how was was the loan for and what was the APR?

joanneinwonderland

Hi thanks I thought I was maybe simplifying it too much

Amount borrowed = £4,000 over 24 months

APR is 13.2%

Is that enough info?

Thanks xx

CLAPTON

the way it works approximately is as follows

in months 1 you owe £4000 so the interest payable is 4000 x 13.2%/12 = £43 approx so you pay 190-43 (= £147) capital back

in month 2 you owe 4000-147 = 3,853 so interest charged is 3853 x 13.2%/12 = £42 approx

in month 3 you owe 3,705 etc etc

so it isn't 'averaged'

so after 11 payments you owe about 2,294 in capital and will probably pay up to two months interest (it depends exactly when you get the settlement figure and when the offer ends ) ... so you will probably pay another £50 or so


This varies a bit depending upon exactly when you paid the first installment too.

joanneinwonderland

Ah ok that makes sense now they calculate the interest monthly rather than on the total. Get it now.

Shall have to sit down with the calculator for some theoretical rough calculations. If it came to the crunch would ask A&L for settlement figure. Suppose would have to as they'd have to agree.

Don't have the money sitting so was just a what if question really.

Thanks v. much for your help

CLAPTON

Yes you do need to ask for a (written) settlement figure.

N1SEXYTING

When I took out my loan, i was told by the adviser (and the assistant branch manager) that the way around paying this early settlement fee is to gradually reduce your loan by paying lump sums into your account alongside your monthly payment.

I just did that last week, and i received letter with new lower monthly repayment and lower interest charged!

CLAPTON

N1SEXYTING wrote: »

When I took out my loan, i was told by the adviser (and the assistant branch manager) that the way around paying this early settlement fee is to gradually reduce your loan by paying lump sums into your account alongside your monthly payment.

I just did that last week, and i received letter with new lower monthly repayment and lower interest charged!

If the loan is a flexible loan that allows overpayment then making a large overpayment before settlement should indeed reduce the settlement fee as its based on the monthly interest payable at the time of settlement.