How flexible are loans now?

lottie3000

I am planning on taking out a loan in the next month and have been reading in various places that the rules have now changed regarding them. Is this true? Are they now more flexible when you want to repay them early??

Tixy

Yes.
On any new loan lenders now have to let you pay overpayments off your loan in addition to you being able to settle early. They are still allowed to charge an interest penalty for settling early and are allowed to charge a percentage of any overpayments you make.

See this extract -

Loan lenders must let you overpay. If you've spare cash you can overpay each month to clear the debt quicker. Providers can charge you up to 1% of the overpayment (if there's at least a year of the loan term left) or 0.5% (if under). Before, the only flexibility you had was to pay the loan off in full early, usually at a cost of one month's interest, which still stands.


- from this article The credit card and loan shake-up: what it means for you

lottie3000

So if I was to overpay the loan in the first year would the second year payments be reduced?

Tixy

Depends on the lender. Some will reduce the term but keep the payments the same, some will reduce payments and keep the term the same.
I think some might even give you a choice (possibly).

ElmerFudd

Tixy - does this apply to new loans only or existing ones?

Tixy

Only has to apply for loans taken out after 1st Feb this year. I think I might have read some lenders were doing similar for older loans but not sure who.

ElmerFudd

Thanks Tixy. Now I know it's a possibility I can bother my bank about it