Loan overpayments - tell them in advance?

chrisjw1972

Hi all

I'm hoping to make overpayments on a personal loan through Halifax, and I wonder if anyone can shed light on something in their FAQ.

http://www.halifax.co.uk/loans/loansfaq/loans%20faq.asp

* Can I over pay?

You can make lump sum payments towards your outstanding unsecured loan balance, if you inform us in advance of making an overpayment we will apply this to your loan and this will reduce the Total Amount of Interest you pay over the term of your loan and may reduce your loan term. If you don't provide us with notice, any overpayments made will only change the period over which you repay the loan and will not affect the rate of interest payable or the total amount repayable.

If you want to make a lump sum payment, please send a cheque payable to 'Halifax' with your name and loan agreement number written on the back of the cheque to.

* If your loan starts with 7/- Halifax Settlement Department, PO Box 548, Lovell Park, Leeds, LS1 1WU
* If your loan starts with 84- Halifax Bank of Scotland, Charterhall Drive, Chester CH88 3AN

I've re-read this a few times but I'm struggling to work out what the difference is between informing them in advance and not informing them in advance. Are they saying that if I tell them in advance they might cut the interest rate?

ViolaLass

It's not very well written but I /think/ they mean that if you talk to them first, you can choose whether you want to reduce your monthly payments or the loan term but that if you don't talk to them, they will assume that you want to reduce the term (although this is contradicted by their claim that they would not reduce the total amount payable). Talk to them, if only to find out what they mean.

chrisjw1972

Thanks ViolaLass, I'll make sure I get it clarified with Halifax before I make any overpayment.

CLAPTON

it seem clear enough

if you tell them in advance, they apply the overpayment to reduce your capital sum and then rework the interest owed so you end up paying less interest than if you hadn't made the overpayment... in other words a good thing

if you don't tell them in advance then they don't recalculate the interest and you pay the full interest as if you had made no overpayments.... a very bad thing and makes overpaying pointless.

skr80

CLAPTON wrote: »

it seem clear enough

if you tell them in advance, they apply the overpayment to reduce your capital sum and then rework the interest owed so you end up paying less interest than if you hadn't made the overpayment... in other words a good thing

if you don't tell them in advance then they don't recalculate the interest and you pay the full interest as if you had made no overpayments.... a very bad thing and makes overpaying pointless.

Sorry to hijack this thread however.... does this mean the following in this example:

original loan - 25000 (total over 5 years with interest approx£31000)
inform wish to overpay £24500
capital outstanding £500 (or is it £500 + the interest of £6000)

If I then wished to settle the loan fully, would I be paying the statutory 58 days interest on £500, or on £500 + the original interest figure of approx £6000.

thanks
skr