Loan overpayment

durike

In Dec 2007 I got a loan of £20000 with a 10.9% interest rate for 7 years from NatWest. My monthly repayment of the loan to NatWest is £336,42.
Since I had a bit of extra cash I decided to pay an overpayment of £1500 to speed up the repayment of my loan (which should be over in 2014). I assumed that an overpayment of £1500 would mean an earlier than 7 years repayment of the loan. And therefore expected the loan to be decreased by more than just the £1500 as by decreasing the loan the interest should decreased too.
Unfortunately, I have found out that my loan has only been lowered by the overpayment of £1500 itself! Which means that although my loan will be paid back earlier than 7 years, I still have to pay the interest as if I was re-paying the whole loan for 7 years! Is this correct or have I misunderstood?

joedenise

I think you'll find that when you get nearer to the date when you pay off and ask for a figure to finish the loan the interest should be deducted from the final payment. This is what happened when I paid off a loan early with A&L.

Denise

redpete

Depends what the figure is that you are using as how much "the loan" is. If it is the amount outstanding, or the current balance, then it is correct, you have paid in £1500 and this is the amount that the balance would have been reduced by. Assuming that they do allow early repayment then you will save in interest, but as the interest is not added to the loan at the beginning then you will not see the current balance reflect this bit.

Ask NatWest how your overpayment will affect 1) the interest charged, 2) the monthly repayments 3) the term of the loan and 4) the total amount paid by the end of the loan.