paying off a debt (£8000)

forallotherthings

I currently have 1 debt (a fairly big debt in terms of my age etc) which is bank loan of £8000. I am easily able to afford the normal repayments (it is a low rate of APR I cannot remember exactly what it is until I’m at home and can look) but I would like to pay this off quite quickly.

I’m not sure what the best way would be to go forward – making overpayments regularly or saving this money somewhere else and putting it towards it or something else I’ve just not thought of.

I’m going to get involved in some of the challenges on here to gain a few more pennies towards it. I’m already saving a lot more money on things like lunches at work and cooking from scratch at home but have recently bought the big money drain that is my first car!

As I am able to make repayments comfortably I don’t want to give up all my luxuries to pay this off faster (I’ve seen the scary willpower of people here and although I’m impressed I think I might have to build up to it!)

Any thoughts?

Tixy

Hi and welcome

First of all you probably need to dig out your loan paperwork and see what it says regarding overpayments - can you make overpayments without penalty? if there is a penalty how much is it.

How much are you paying off at the moment and what term is the loan on? and obviously what APR (when you've looked at the paperwork).
How much more can you/will you want to put aside each month?

It does sometimes work out better to save the extra money until you have enough to pay off the full loan, but it all depends on the cost of overpayments and the APR on both the loan and on the savings you'd be building up.

forallotherthings

Thanks for reply - I will have a look at all those bits when i get in and post back.

forallotherthings

Hi

Ive dug out my paperwork, the loan is for £8000 over 61 months, at a rate of 8.9% APR.
I don't understand the terms - I can make overpayments but will be charged 30 days interest on top of the regular interest. It also says the APR is calculated assuming I stick to the whole term - does this mean they'll increase it if i pay early? I'm confused about what it means, it sounds like if I pay early it'll cost me a lot more is this right?

i'll also pop an SOA up for any hints and tips

forallotherthings

also is it true that the 30 days interest is at an different rate to the loan and that I will pay the total amount of interest regardless of when i pay it (but maybe more)?

Two9A

Sounds a bit punitive to be charging interest on top of the standard rate, if you make overpayments; unfortunately, I've found that to be quite common in loans that aren't mortgages.

Normally, I'd say "start overpaying", since 8.9% on the debt is a lot higher than you'll see by saving the money somewhere, but if interest is punitive I'd start putting your spare money into a 3% ISA of some kind.

It should build up before long, then you can properly settle the loan

forallotherthings

Bear with this - it asked how many adults live in my house - i live with my friend in the house he owns along with 2 other friends. these people don't impact on my finances i put them in for info.

I also don't have 3 cars! I have 1 but as a household we have 3.

I've left out some things - need to do a diary of how much i fritter on food, entertainment etc cos i really don't know.

All my household bills except gas and electric (water, ctax, insurance, internet, tv license, internet, landline) are included in my £320 rent but I've tried to break them down. I can't stop or change these - if it was felt they are too excessive my choice is to move out and get my own bills in my name.

I put £150 each month in an account for dental charges, registration fees (im a nurse), gas, electric, christmas presents (pay birthdays as they occur and car expenses but again I've tried to split these for info.

Statement of Affairs and Personal Balance Sheet
Household Information
Number of adults in household........... 4
Number of children in household.........
Number of cars owned.................... 3
Monthly Income Details
Monthly income after tax................ 1300
Partners monthly income after tax....... 0
Benefits................................ 0
Other income............................ 0
Total monthly income.................... 1300
Monthly Expense Details
Mortgage................................ 0
Secured/HP loan repayments.............. 0
Rent.................................... 260
Management charge (leasehold property).. 0
Council tax............................. 25
Electricity............................. 10
Gas..................................... 10
Oil..................................... 0
Water rates............................. 7
Telephone (land line)................... 0
Mobile phone............................ 35
TV Licence.............................. 3
Satellite/Cable TV...................... 10
Internet Services....................... 10
Groceries etc. ......................... 0
Clothing................................ 0
Petrol/diesel........................... 120
Road tax................................ 10
Car Insurance........................... 0
Car maintenance (including MOT)......... 10
Car parking............................. 0
Other travel............................ 0
Childcare/nursery....................... 0
Other child related expenses............ 0
Medical (prescriptions, dentist etc).... 13
Pet insurance/vet bills................. 0
Buildings insurance..................... 0
Contents insurance...................... 5
Life assurance ......................... 0
Other insurance......................... 0
Presents (birthday, christmas etc)...... 35
Haircuts................................ 0
Entertainment........................... 0
Holiday................................. 0
Emergency fund.......................... 0
Union fees.............................. 17
Total monthly expenses.................. 580

Assets
Cash.................................... 0
House value (Gross)..................... 0
Shares and bonds........................ 0
Car(s).................................. 800
Other assets............................ 0
Total Assets............................ 800

No Secured nor Hire Purchase Debts
Unsecured Debts
Description....................Debt......Monthly...APR
Loan...........................8000......165.7.....8.9
Total unsecured debts..........8000......165.7.....-

Monthly Budget Summary
Total monthly income.................... 1,300
Expenses (including HP & secured debts). 580
Available for debt repayments........... 720
Monthly UNsecured debt repayments....... 165.7
Amount left after debt repayments....... 554.3
Personal Balance Sheet Summary
Total assets (things you own)........... 800
Total HP & Secured debt................. -0
Total Unsecured debt.................... -8,000
Net Assets.............................. -7,200


Hopefully this makes some sense - looks like I should have loads of surplus and i normally have a little but not what I should so I'll do a diary for the extra spends and have a look at that.

I'm also not sure how much indulgence is acceptable - I know thats really my call to make though.

forallotherthings

Hey Two9a thanks for the reply, thats what I was thinking might be the best option. I asked my friend (a solicitor) about which would be the best option and said they have to tell me but something tells me they won't really want to lose out to give me money!

Tixy

Hi

If you will be charged extra interest for overpayments then I wouldn't go down that route. Better to put money into savings until you have the settlement amount and then pay at that point.
If you pay off the loan early you will pay the balance at that date (just the capital amount outstanding not future interest) plus 30days worth of interest on the capital balance outstanding. So if you pay off early you will end up paying less overall than if you let the loan run its course.
They won't actually change the interest rate if you pay off early but they way APRs are worked out and the above additional interest means if you pay off early it would work out to a slightly different figure.

I see you've put your SoA in. You've missed out groceries - I assume food, toiletries etc are not included in your rent?
Also you haven't budgeted for car insurance. I'd also try to put in small budgets for things like clothes, haircuts, entertainment so that when you look at your surplus figure it should be what you have after allowing for these types of costs and so should be able to save/put towards debts.

forallotherthings

thanks for reply, oops dunno how i missed out car insurance - I budget it into the £150 i put away each month

Yeah I missed out the other things as I am still trying to work out how much I actually spend