Early Redemption Of Loan - Any Benefits?

sarymclary

I have a small loan (£6k over 5yrs started in March 2003). I am in the fortunate postion, where I will be able to clear all my debts with a lump sum due to me from the sale of my house [there have to be some benefits from being made homeless!], and enquired with Lloyds TSB about a redemption figure.

The current loan balance (viewed online on my a/c details) is £3798. The redemption figure (minus a PPI rebate of £231) is £3680. Now, maybe I was a little optomistic in thinking that they might have charged me an early redemption fee, but recalculated the repayments in accordance with repaying 2 years early, so not having borrowed and accumulated interest for the full 59 month term.

It seems, on this basis, that I'd be better off investing the amount I'd have used to pay off the loan in a high interest account, and earn myself some money instead!

Any ideas around the figures offered? Is there any way to negotiate?

*note:* if I keep the loan for the full term, I am going to look into cancelling the PPI, since I'm not covered under the terms as I was originally (was employed, now not, but due to my Benefits unable to claim). This should decrease my payments by £31 per month.

angelica

There was a similar question asked in this tread
http://forums.moneysavingexpert.com/showthread.html?t=137127
Hopefully it helps

sarymclary

Thanks Angelica,
So, from what I can gather then, I've been paying off all the interest up until now, so there's nothing to reduce in the settlement fig. because it's all capital. Therefore, what is to be gained by paying off a loan early, such as suggested in the thread you gave, other than peace of mind? If you have the money put into a 5% savings account, surely that makes you better off in the long run?
Am I missing something fundamentally obvious here, and simplifying things? Hell, I just don't want Lloyds TSB to have the benefit of my money too quickly, if there's nothing financially to gain out of it for me.

jonesMUFCforever

What rate are you being charged on your loan?
What is the best rate you can get net of tax in a savings account?
I will bet with you that you are paying more interest on the loan than you will ever get on a savings account.
Interest is being charged on the a daily basis - what you have paid off so far represents the PPI premium that was added on to your loan when it was opened and very little capital.
IMO you would be much better off paying the loan off now and saving whatever the repayment was every month in a high interest account.

angelica

I don't know how LTSB adds interest. Upfront or not, but in any case when you repay loan earlier, the bank calculates the interest discount and the charge overall will be smaller.

I wanted to point you to the fact that apparently with Lloyd it is advisable do not to pay the full amount of the settlement but leave the last loan monthly charge to be deducted by DD, then you will avoid early settlement charges. But as I said I do not have experiences with Lloyds and cannot confirm that.