Paying off a loan early

mailrush

Hello

If you have a 7 year loan and decide to pay it off after, for example 3 years, how much needs to be paid back other than the early redemption charge? What im trying to work out is; is the balance to be paid the remainder of the "total amount payable" (i.e. including the full loans interest for the full term) or "the loan amount" (i.e. remainder of the borrowed amount and the interest up to the date).

Thanks

CLAPTON

for a normal unsecured loan, the balance of the capital plus the early redemption charge... so it will be less than the total amount payable.

mailrush

Thanks for the reply.

So,

Borrowing £20,000 over 5 years
Interest = £4,500
Total payable = £24,500
monthly payment = £408.33

After 3 years you have paid £14,699.88 in monthly payments.

Do you then pay £5,300.12 (+ early redemption charge)?

CLAPTON

Sadly no

you took out a loan at about 8.5% APR

the interest is worked out on a monthly basis approximately like this
the first month the interest charged is
20,000 x 8.5% /12 = 138 so you repay 270 of the capital so leaving 19,730 owing

so in the second month you pay interest of
19,730 x 8.5% /12 = 136 thus paying off 272 capital leaving 19,458

so I'm afraid a significant amount of your repayments have gone towards paying the interest and only part have gone towards capital repayment.


so after 36 payments you will still owe about 9,000 in capital.