What would you do?

glastocat

We owe about €15k altogether, €14k of it is a bank loan on around 7%. We have been paying this off for a while now at €460 pm. My dad died last year and we are coming to the final stages of probate. It looks like he has left me about €18k cash ( depending on solicitors fees and share prices, and half of his apartment I it is co-ownership) which has been valued at €50k, with me to get half the proceeds when it was sold.

My first inclination is to just wipe out our debts so we are debt free. However the bank said to me that I could also keep paying off the debt as we are doing, as we might need the credit for something else. This seems crazy to me, am I right? My husband works as a builder, so his job has little security at the minute (although things are in the pipeline and should improve soon. I hate my job and am off with stress, so thats a huge worry too. We would be putting the flat on the market asap, but it is in very bad nick and may take an age to sell, and we would be hoping to use that money as a house deposit ( we are renting, waiting for further house price falls - in Ireland we believe they still have some way to fall.) Anyway, what would you do? Pay it all off and enjoy the warm feeling, or keep the credit line open in case we need it? Any advice much appreciated, I know I'm lucky to get out of my debt, and want to make sure it won't hapen again!

foxymum1977_2

sorry to hear your sad news, i would definatley pay off the debt & start again debt free!!
good luck with what ever you decide x

DVardysShadow

glastocat wrote: »

...

My first inclination is to just wipe out our debts so we are debt free. However the bank said to me that I could also keep paying off the debt as we are doing, as we might need the credit for something else. This seems crazy to me, am I right?

Well, they would say that wouldn't they? If they suggested you pay the loan off, it would be like turkeys voting for Christmas.

Deffo pay the loan off and all other credit. Just think, you will have freed up £460/month

gonzo127

well this is a tricky one really.

basic maths would say paying off the loan would be the best bet as at 7% interest it will cost you quite a bit and if it is in savings the very best you can hope for at the moment would be around 2-3%, however do you know if the loan has any early repayment penaltys? a lot of fixed term loans do! if so it might not actually work out much cheaper to pay it off in one go

if the loan does have a early repayment penalty i would want to know if it has any overpayment penaltys some loans allow you to increase you payment to a certain % each month with no penalty, this in effect shortens the lengh of the loan and decreases the interest paid - this could be a good option for you as you could keep the money in your savings and pay the overpayment amount out of your savings, still keeping a lump sum 'just incase' but also becoming debt free quicker and minimising interets payments

glastocat

gonzo127 wrote: »

well this is a tricky one really.

basic maths would say paying off the loan would be the best bet as at 7% interest it will cost you quite a bit and if it is in savings the very best you can hope for at the moment would be around 2-3%, however do you know if the loan has any early repayment penaltys? a lot of fixed term loans do! if so it might not actually work out much cheaper to pay it off in one go

if the loan does have a early repayment penalty i would want to know if it has any overpayment penaltys some loans allow you to increase you payment to a certain % each month with no penalty, this in effect shortens the lengh of the loan and decreases the interest paid - this could be a good option for you as you could keep the money in your savings and pay the overpayment amount out of your savings, still keeping a lump sum 'just incase' but also becoming debt free quicker and minimising interets payments

I was told there would be no early repayment penalty, so I assumed that meant I would just be paying the exact same amount in cash, only handing it over earlier ( so I would be paying the interest over the entire fixed period ( five years), even though the money will be paid back after two years? Which would mean the bank was still doing pretty well out of the deal! Or should / would I only be paying interest on the two years I will have had the loan? I'm confused!

gonzo127

the way i would normally expect it to happen if no early repayment penalty is that you would just pay the remaining balance and NO more interest, a early repayment penalty is usualy to compensate the company for 'lost' interest due to you paying the balance back early

glastocat

That's very interesting. I suppose I had just assumed that I'd have to repay my monthly repayment times however many months are outstanding, but obviously this is going to include 7% interest approx over the whole period of 5 years, and not the actual period of the loan ( two years to date approx). If this is the case the repayment amount is going to be lower, as I was definitely told there would be no penalties for early repayment. Could someone with better maths than me make a stab at how much I would need to repay in total if the 14k outstanding is repaid early? Its Ulster bank by the way, in case that makes any difference.

andys15

All you need to do is phone the bank and ask for a settlement figure. You will probably owe about 12-12.5 k, but the bank will tell you in seconds. They will likely charge a early payment charge as all seem to do, but it is only about 2 months interest, £90 tops.

ps/ did you take out ppi for the loan?

glastocat

But isn't the interest for the entire period built into my monthly repayments already? So should the repayment figure not be lower than this as the interest period isn't so long, or am I confused?

losethedebtlou

Definitely pay off the debt, the banks are trying to make more money off you! They hate people that pay their debts off early as it stops them getting all the interest !

andys15

glastocat wrote: »

But isn't the interest for the entire period built into my monthly repayments already? So should the repayment figure not be lower than this as the interest period isn't so long, or am I confused?

Just ring them now you will be pleasantly suprised. hurry i will wait for your answer.