Repaying loan off earlier, questions!!!

alirob12

Hi I am trying to help my friend repay the loan off earlier, (with lloyds tsb) and there is a point in his agreement, i am trying to make sure i ve got facts right: if one repays it off ealier there is a fee equal to 58 days interest up to £250. calculated on daily basis.

my friends still has just over 6k to payy of at .... 20.9%APR!!! paying £156.00/month. Should he pay off 95% so lets 5.8k and wait a while so the closing fee is a percentage of the outstanding £200 odd pounds, therefore a lot less then £250??

Any advice would be appreciated.

Thanks!:beer:

mrmajika

Even better = overpay all but the last month's payment, then let the last month go out by direct debit as normal. The following month there will be a few pounds and pence of residual interest. The loan will be paid off and there will be no fee!

Happy days :j

Paul_Herring

That's still paying it off early, and likely to invoke the 56 days interest.

jamesd

alirob12 there are a several of ways of doing this, in best to worst order:

1. As mrmajika wrote, pay off all but the amount that the last payment will cover. No settlement at all, so no early settlement interest.
2. Another easy one is the one you gave, just pay off all but a little and then settle after the next payment. Not quite as good as 1 because there's still a little money on which an early settlement charge will be made.
3. The other way is to not ask for an early settlement amount at all but just pay enough to cover it all. In this case the 28 days part can't be charged because they have to calculate from the day the payment is received. However, they can still charge a month for a loan over one year so this is more expensive than method 1. You only do this if the loan doesn't let you make extra payments, forcing you to pay it all off in one go.

Paul_Herring, 56 days would be the statutory maximum of 28 days for the required validity period of a settlement amount quote plus one month extra allowed for early settlement of a loan with a term longer than one year. It is not payable except on settlement.

Paul_Herring

But if the loan is set to run for , say, 60 months, and it's paid off in 30 months, how can the bank not claim it's been settled early?

Jazzie99

I'm in exactly this position. I have the funds now to pay off my loan which ends in October 2011 but I want to avoid the early repayment fee. I called LloydsTSB and they said:-

a) you can overpay
b) if you make 'too big a payment', their systems are set up to alert them immediately with regards to charging you an early repayment fee.
c) I said I wanted to make an overpayment of £750 each month which would end the loan in Dec 2009 - they said this was fine.

I should have asked them what 'too big a payment' was!
Hope this helps

jamesd

Paul_Herring wrote: »

But if the loan is set to run for , say, 60 months, and it's paid off in 30 months, how can the bank not claim it's been settled early?

The Consumer Credit (Early Settlement) Regulations only apply when a loan is 100% paid off.

A loan agreement can have, in addition, some penalty or prohibition on early partial repayments.

Kavanne

Paul_Herring wrote: »

But if the loan is set to run for , say, 60 months, and it's paid off in 30 months, how can the bank not claim it's been settled early?

it hasn't been because the loan was closed by paying the standard monthly DD, which means there won't be a charge Not many people understand this but it can be done. The charge for settling early only applies if you make a lump sum payment which covers the WHOLE outstanding balance

DesG

This only applies if the lender accepts overpayments. Most loans do not allow overpayments.

Lloyds TSB do, and you can indeed pay off a lump sum and have the last payment come out by DD with no early repayment penalty.

Cheers, Des.

alirob12

Thanks very much I will follow the guidelines.. and overpay most of it... it is ok to overpay in his loan so hopefully we will manage to get it sorted soon!! cool,
thansk very much for your advice guys!!