Should there be a statutory right to overpay?

[Deleted User]

I've been thinking a lot about loans recently as I try to pay off my own. I've been thinking about what problems they cause and which elements are the most burdensome.

One of the key things for me is that the loans I have do not allow overpayments. So, unless I have got the full outstanding amount, I can't cut the balance down.

While I appreciate banks are businesses, I also think that in this economically difficult times it wouldn't be too much of a problem if legislation was introduced that ensured that ANY loan product offered by a lender MUST offer the borrower the ability to overpay towards that loan.

e.g. if someone takes out a loan for £10k, and then finds themselves with £3k (perhaps an inheritance) then lenders should - by law - be forced to accept this overpayment to the loan, rather than forcing the borrower to wait until they have £10k saved.

What do others think? For me, having had a couple of loans for 4 years now, it would have made a HUGE difference and I could have reduced the interest I'd paid much easier.

It seems like quite a simple thing to do - albeit not in the favour of banks - that could make a big difference.

_Andy_

Fine in principle but you'd need to accept higher interest rates as a consequence.

moneysavingobsessive

The trouble is that this would make loans more expensive (higher APR) for those paying over the full term. Banks offer flexible loans with higher APR typically and lower APR for true fixed loans. That way people who end up buying the loans can understand any pre-payment risk involved.