Early settlement of a loan

rokki

Can I take out a personal loan of £14,000 (for home improvements) over a period of 10 years (to keep my monthly payments down) and within one year pay the outstanding loan balance off using the money I make from the sale of the house?

I know that I'll incur the early settlement charge of two months interest but does anyone know how to work this out? (Is it really as simple as taking the interest I'll pay over the full term of the loan and dividing it by the 120 months and multiplying by 2?)

Is this a legal option and is there anything else I should watch out for in going down this route?

Your help is greatly appreciated.

iamadave

Most unsecured loans are capped at 7 years, some lenders now only go 5 years loans.

Sounds like you would need to ask for a mortgage extension then clear it when you sell or overpay if you are allowed 10% extra a year?

rokki

Thanks for your reply, but I probably haven't made my intention very clear. Here's a few more details:

My wife and I are looking to buy a property to renovate and sell on. The mortgage has been approved in my name (my wife has the mortgage for our current house) and we have enough savings to pay the 15% deposit. The property renovation will cost around £15-18k of which we have £5k left in our savings, after the deposit and fees have been paid.

I can't get an extension on the mortgage as I won't have had the mortgage long enough, so my wife will apply for a personal loan through Tesco to cover the extra renovation cost. We are looking at taking the loan out over the longest term possible to keep our monthly payments down to a minimum while we carry out the renovation work.

We plan on selling the new property once all the renovation work has been completed and will pay the loan off with the extra money made on the sale.

What I really need to know is: by taking this loan out over the longest term possible, knowing I'm going to repay it early, am I likely to incur any charges, other than 2 months interest, and will it affect me credit rating in anyway?

Xbigman

The easy answer is yes. However, you need to check the terms and conditions of any loan you take out. You need a loan that allows overpayments without any penalties. The idea then is to make a large overpayment (say 95%) then let the small outstanding balance be paid off with a normal payment.

I've just done this with Lloyds. Loan balance £17,500 (approx). I paid off £16,800 and let the normal 1st Jan payment for £502 go through. On the 1st Feb (when the regular £502 payment was due) Lloyds took £248. If you compare the settlement figure with the actual amount paid, it cost me £12 in interest instead of just over £300 in settlement fees. Well worth it.

Note. I did the same thing in 2002 and Lloyds took a full payment instead of the part payment, then refunded the difference.
Regards




X

CLAPTON

rokki wrote: »

Can I take out a personal loan of £14,000 (for home improvements) over a period of 10 years (to keep my monthly payments down) and within one year pay the outstanding loan balance off using the money I make from the sale of the house?

I know that I'll incur the early settlement charge of two months interest but does anyone know how to work this out? (Is it really as simple as taking the interest I'll pay over the full term of the loan and dividing it by the 120 months and multiplying by 2?)

Is this a legal option and is there anything else I should watch out for in going down this route?

Your help is greatly appreciated.

if e.g. you borrow 10,000 at say 10% APR
then if you settle owing say 9,000 then the two months interest will be approximately 9,000 x 10% /12 x2 = £150


however xbigman method may reduce this