Loan repayments - how does it all work?

bargainbuyer123

Hi all,

I am taking out a loan of £6000 over 48 months, to cover the cost of a car purchase (private sale). In the meantime I'm selling my own car which will probably fetch around £4000. Therefore I will pay the £4000 off in one lump some straight away. What I don't understand is - will the monthly repayments I owe then decrease as I now only owe £2000 + interest, or will I be required to pay the monthly payments given in the application and therefore finish the loan early (no doubt being charged for this)??

Another way of putting it is: as I will then owe £2000 to the bank, will they spread this over the 48 months, or will I have to keep the monthly payments the same and finish the loan inside the 4 years?

Thanks very much.

CLAPTON

firstly ..does the bank allow the 'overpayment' of 4,000 and if so does it reduce the capital that interest is charged on.

secondly ..whether it changes the period or the monthly payment depends upon the loan T&Cs. but most continue with the same monthly payment and the loan just finishes earlier.

kalaika

As Clapton says, you need to find out if the loan provider will allow you to make an additional payment of £4,000 to clear some of the balance or not.

If they do, then they should be able to tell you how they will deal with your regular repayments (most likely stay the same). If they don't then the £4,000 will not be able to be used as a lump sum payment against the loan and you'll only be able to clear the balance by making the monthly payments.

Out of interest, do you *need* to buy the replacement car now (before you've sold your other one)? Can you not just take a loan out for £2,000 to give you the total you need once you've sold your car for £4,000? You might pay less in interest and fees that way.

bargainbuyer123

Thanks for the advice. A+L don't accept lump sums..

I have a deposit down on a car and the guy who is selling it is pushing me to take it before I can get mine sold. I know - a bit of a fix that I could've avoided. But now I'm in it I need to think about the best way to do this.

CHR15

You could stick the £4k in the highest interest savings account you can find and let it work for you whilst maintaining the payments (ISA??)..

Or put in in an Instant Access Savings account and use it to help fund the repayments whilst attracting a mediocre interest rate.

Best to avoid the loan altogether though and sell your car quickly.