Early Repayment - Rule 78

Munion

I have a loan from Tesco at quite a good rate of 6.4%. However I decided to refinance with a loan from Moneybackbank at the better rate of 5.5%, obviously without the PPI. The problem I have is I took the Tesco loan before 31st May 2005. In order to pay the loan off now I am being penalised under Rule 78 to the amount of £900.

Having read legislation, it says for loans taken before this date of under 7 years, the Rule 78 will be no longer be enforcable in 2007. Therefore would I be better taking the hit now and paying off, or holding the new loan in some form of investment and waiting until next year to pay off the Tesco loan.

The calculations are almost impossible, but if they have to re-jig their penalties for the new rules, I reckon they would only be able to impose at max a 2 month interest penalty, amounting to circa £140.00.

Anyone who knows the answer to this is smarter than me, but all help would be appreciated.

Regards,

Philip

nomoneytoday

To be honest the monthly difference between 5.5% and 6.4% APR is not a great deal.
On a £10000 loan over 4 years the payments are approx £232 and £236 a month (£4 a month difference, £192 over 4 years)

If you find out the monthly payment, multiply it by the number of months and find the total cost, see if this is cheaper after paying the penalty.