Making early settlement of loan ...

nessauk

Hi,

Next month i'm hoping to pay off a loan early. Payments are taken on the 1st of the month, and it was to finish at the end of July. Am looking at the balance to being just over £1000 outstanding after Jan 1st's payment is made.

However I'm just read the T&C in Lombards paperwork, and it appears i'll be penalised (rule 78) for early settlement. However, my dad has now just advised me that the penalty won't be as bad if I only made a large enough payment to leave only £50 outstanding on the loan, as when the final payment is calculated they will only charge me the interest on the remaining £50 as opposed to the £1000 or so if I cleared it in full.

My question is, is he along the right lines in what he's saying? Will I be better off leaving a small balance instead of getting my fingers burnt by paying everything off?

Thanks,

Ness.

Lopo

Hiya...

Some Purchase Plans (fixed term repayment loans for the purchasing of goods) also sting you with an early repayment fine/charge/kick-in-the-head or whatever you want to call it.

The work around is - yes - as you indicated to pay of a large lump, then pay the extra penalty (often but not allways something like 2 months interest) on the remaining smaller part the following month after the next billing or due date.  Dont do it the same month as they will consider it as payment in full and you will get stung with the full penalty on the full (ie: before lump sum repayment) amount!!!

Just go through the terms to be doubly sure, and go for it.

One thing to watch out for which you may only be able to establish by contacting and speaking to the finance company is if you generally have made your repayments via direct debit,... then after you have made a large lump repayment the next payment may or may not be taken automatically as they would consider you having paid in advance - depends how the finance company functions....just be sure to consider/establish whether and how this may affect you too....

Once you have completed the total repayment, be sure to request a letter from them detailing that they have been repaid in full for the loan amount for your records to retain.

Hope that helps!

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