Over paying on a loan?

Cezzabelle

Hi

My OH and I took out a ridiculous loan 3 years ago and have 4 years left to pay. We took about £15k at 12.3% interest to consolidate our debts which we expected/hoped to pay off earlier-wont bore you with the details why the rate was high etc but "thought" we would be getting money in a lump sum which would pay it off in one go... we didn't. (lesson learned though!)

Loan is due to be paid off in 2015, at £270 per month.

Im a bit confused as to whether there is any way to pay it off for less. (I dont mean less than the 15k borrowed, i mean less than the 20-odd thousand poundsit will actually cost us with interest if we keep it for the full 7 years. We once inquired about paying a lump sum off the amount and were told that wouldn't decrease the monthly payments just the duration. Settlement figure is obviously less than we would pay if we keep paying for the full seven years-so I "think" that if I overpaid each month it would pay the loan off quicker but also we'd pay less interest? Is that right?

If it is, how do I go about calculating how much "extra" is worth it? We can afford to keep paying the £270 a month if we have to, or if thats the most cost effective way, but if we could get rid of it quicker and for less interest then I definitely want to

Would like to start married life debt free if we can

thanks in advance clever people

Tixy

You will need to check whether partial overpayments of the loan are allowed (they have to be on all new loans but often are not on old loans). Your paperwork should say.

If overpayments are not allowed then instead save up the extra you can afford each month in a seperate account and then when that figures equals the settlement figure you could pay it down early.

Cezzabelle

Thanks Tixy

If they are allowed then will it reduce the interest we pay overall and the duration of the loan?

Apologies if its a dumb question....

paddyrg

It will affect the duration, amount or both. By default companies will keep your payments the same and reduce the term, but you can negotiate and see if they will do something in the middle :-)

(btw - reducing the term and keeping the same paymens is cheapest for you)

Cezzabelle

How do i reduce the term and keep the payments the same? ...sorry if i've just misunderstood, but if i keep the payments the same (£270 per month) then dont I just keep paying that until 2015?

Tixy

Cezzabelle wrote: »

How do i reduce the term and keep the payments the same? ...sorry if i've just misunderstood, but if i keep the payments the same (£270 per month) then dont I just keep paying that until 2015?

Paddy means the future contracted payments (the amount they take automatically) will stay at £270 but as you've made an overpayment your term will be slightly less.

The alternative is you could ask that if you pay, say, £500 off in a specific month that in future months your payments are recalculated so you still pay until xmonth in 2015 but all your future payments are only £265 per month (or whatever). But as paddy says the best option is to keep your future contracted payments at the same level and just reduce the term for any overpayments you make.

geoffky

Did debt consolidation work for you?

CLAPTON

Cezzabelle wrote: »

Thanks Tixy

If they are allowed then will it reduce the interest we pay overall and the duration of the loan?

Apologies if its a dumb question....

you need to check the T&Cs of the loan

some loans will allow overpayments and some will not

when overpayments are allowed then some loan reduce the interest but some donot

the rules changed in January but that doesn't apply to your loan

Cezzabelle

geoffky wrote: »

Did debt consolidation work for you?

Yes it did in that it got us out of a short term sticky situation but its a long term solution that will cost us way more in the end which is why, now we are thru that "sticky" bit and back on our feet, i'd like to clear it quicker if i can.


Posted reply above earlier but was thinking about it and just wanted to add, that consolodation worked as i said above but at the same time we moved out of our rented new build into a grotty terrace which halved our rent, reduced council tax and was cheaper to run, and at same time we both retrained/sat further exams to make us eligible for promotion (him) and get a new job (me) Weve since saved up and bought our own house (i realise it wouldve made sense to pay the loan off instead of getting a mortgage but we only had a sixth month window to save the money-wont go in to why)

So the loan is affordable for us, im just getting into this MSE lark now and looking to save where i can

Cezzabelle

Thanks guys

I will get out the paperwork this weekend and see what we are "allowed" to do.

Tixy wrote: »

Paddy means the future contracted payments (the amount they take automatically) will stay at £270 but as you've made an overpayment your term will be slightly less.

Im looking at overpaying everymonth ie increasing our monthly payment-not just making a one off. So does that mean, say if i increased it too 500 a month (for example) it will take less time to pay off and we will pay less in interest as well?