Overpayments on a loan question

cheredenine

I will be taking a loan out in the next year to pay for a new car. I will have a budget of approx £300 per month for repayments, but am looking to get a loan of an amount and repayment period such that the monthly repayments are between £150 and £200 per month.

The idea here is that i then have a safety margin; most of the time i will use the difference between the repayment amount and the money i have spare to make an overpayment on the loan, but if i occasionally need to buy or budget for something else i can not make the overpayment that month and not be left out of pocket.

My question is, however, does anyone know of an overpayment calculator for personal loans like this that would allow me to see the effects of making overpayments versus not? I have found such a calculator for mortgages, but this shows the term of the loan being reduced, whereas i believe with a personal loan the term is fixed and the monthly repayment is brought down.

Any ideas?

PS I was going to post a link to the mortgage calculator for reference, but i'm to new a member to be allowed to! It found on this site in the mortgages section, however.

paddyrg

Each finance deal will be different in whether overpayments reduce the term, premium, or both, and what is costs you to overpay, so ask them! Maybe they can do what you want? Have a look at zopa.com and ratesetter.com (peer to peer lending), as you can overpay those as much as you like, may work out cheaper than some car company finance dept.

cheredenine

Thanks for the reply! I have looked at Zopa's site and its on my list of places to check more thoroughly when the time comes. Just to be clear i always intended to approach a reputatble company for a personal loan (Sainsburys, Alliance & Leicester, etc) and not a dedicated car finance company.

My understanding was that most personal loans would drop the monthly repayment if i overpaid rather than drop the term of the loan. Either way works fine for me, but i'd like to know which is the more common - any people with the relevant experience like to comment?

blacksta

You can overpay on nationwide Loan but does not decrease your monthly premium as that is fixed

poppasmurf_bewdley

You will need to check very carefully with each lender. I don't know if it still goes on, but when I had a mortgage if you overpaid in any way, that extra money was not credited to your account until the anniversary of you taking out the loan, ie. if you took out a mortgage in April, and put in an extra £500 in July, that money wouldn't be credited to your account until the following April, meaning the mortgage provider had free use of your money for nine months.

As I say, I don't know if that still goes on, but if it does, loans may be the same. It's worth a check.

jamesd

You're right that most personal loans reduce the repayment.

All personal loan companies are now required to accept overpayments. They are allowed to charge up to a couple of months extra interest on the amount overpaid. Not all do this, Zopa is one that doesn't.

Lenders that charge a fee up front may show you a misleading interest rate if you plan to over pay. That is because the effect of the fee is spread over the whole loan term. Repay evenly over two years on a three year loan and the effect of the fee on the APR should be 50% higher than shown in the APR you are given at the start. The faster you repay, the greater the understatement of the real APR you've been paying.