Front loaded loans question

moozie_2

Hello DFWs

I posted this on the loans board thinking it would be the appropriate place but it's so quiet over there :rolleyes: Was wondeing if you have any pearls of wisdom for me please.

Quick question please - can't believe this only occurred to me today but there you go.

With front loaded loans, is there any saving to be made in paying them off early? If the interest has already been charged, I am struggling to see the advantage of paying sooner rather than let them run their course.

I have two of those loans and although I have been aiming to start overpaying on one soon, I am not sure if it's worth it now

Many thanks

Moozie x

CLAPTON

do the following calculation for early repayment

a. multiply your monthly payment by the number of months left to pay

and

b. get a settlement figure from the loan company (in writing of course).

you will then be able to compare early repayment with continuing for the full term...it will at least give you some sort of guide.

as far as overpaying is concerned you need to read the terms and conditions and see what they say..often there is no point as they merely treat overpayments as repayments and the interest in unchanged.

moozie_2

Thank you Clapton, I'll do that this evening as I have recent settlement figures at home.

As far as the overpayments are concenred, one company will accept them as long as they are the same every month. So basically, they will increase the monthly payment and shorten the term when I am ready.

The other company will only accept lump sum payment to pay it off completely.

moozie_2

Right, I thought I'd update this in case anyone else has a similar query.

I did the calculation Clapton suggested and it turned out that if the Tesco loan is paid earlier, I will be saving £365.79. If the Sainsburys loan is paid off earlier, I will be £116.46 better off. Grand total of saving is £482.25 .

I am sure this is not the most DFW thing to say but I wonder if it's actually worth it :think: Having a life as well as paying off my debt is very high in my priorities list. As we will be making some drastic life changes in the near future, I wonder how important it is to pressure myself even more monthly and pay the loans off early. Something to ponder on....

lynzpower

Is this with just snowballing your payments, or is it with OVERpaytments?

Snowballing should be no problem but I take your point about overpayment, especially that sainsburys one.

Sorreeeee I know thats not v DFW either

But then i guess its how quickly you can bring your DFD and how badly you want it earlier. IYSWIM

CLAPTON

a couple of things

firstly overpayment: whether it's financially worthwhile depends upon whether they reduce the interest to reflect the over payment rather than simply agree to accept it. so simply shorten the term may not reduce the overall level of interest and therefore makes no financial sense ...so if new payment x new number of months = old payment x old number of months then it isn't worth it (financially that is).

secondly : full settlement ...in addition to the calculation i suggested , you should also consider the interest you could earn by saving the lump sum rather than paying it off.....if you post the actual details it would be clearer. i.e. settlement figure, current monthly payment and number of months left.

tyllwyd

If the difference is just a few hundred pounds, I think it is completely down to you and your own life. Nobody is forcing you to be debt free at a certain date, so if you are paying back your debts at the rate you agreed with the lender, they are happy, you are doing what you promised to do, so it is down to you to decide how to spend your money. Do you prefer to have a slightly more comfortable life, or do you prefer to cut everything to the bone so that you can pay it off a bit more quickly. There is no moral obligation on you to overpay.

That's what Martin says (as I understand it) - if you have earned the money, it is entirely up to you if you decide to spend it. What seems to upset him is people wasting money and not even realising what they are doing.

moozie_2

Thanks everyone

The thing is, at the moment I have split my debts into two: priority one is to clear the overdraft and credit card (£1,913) and priority two is the two loans (£10,500 approx). By Feb the od and cc will be cleared and then I have to look at what is best to do with the loans as my life will be then (I will come to that in another post soon). It's just deciding whether a few hundred pounds saving in the long term is worth bringing the DFD forward a year.

Hope all this makes sense :rolleyes: I will update this thread more fully when I am back at home and have all my facts and figures with me.