Early loan settlement

janecsimpson

I took out a loan with the co-op bank in 2009 for £25000 payable over 60 months at 7.860% interest. My payments are £506.74 per month and my current balance is £15,764.17. I am trying to save up to pay this off early and phoned to find out an early settlement figure and was told it would be £16,204. Is this correct? I stupidly thought I would pay less if I settled early but clearly that is not the case, I thought there were regulations in place that meant it would not be prohibitive to settle early. It says something on the back of my statement about a rebate for settling early, but I assume that anount is included in this calculation. Can you let me know if this seems correct? Many thanks,

JCS

CLAPTON

how many payments have you made
did you have any payment free months at the beginning of the loan

Wilster

I have had a similar experience with a Lloyds loan which started repayments 3 months after obtaining. I have also had two repayment holidays but they have extended the term by 9 months to account for that. This in itself seems very harsh but I presume they have me by the the preverbials. However surely they can't still charge a higher amount for early settlement? Another quick question- my bank manager told me "off the record" when I took it out that if I paid off all but one months repayment then let the last month come out as normal, the system would not know it was an early settlement! Does anyone know if this is true?

janecsimpson

I signed the loan agreement on 3/9/9 and the first payment was on 1/11/9, and I have made all monthly repayments since, meaning I have paid 23 of 59 payments. I am grateful for any advice you can give,as it seems mad for me to be saving as much as possible if it is going to cost me extra to pay it off early.

Tixy

Your current balance is just the capital owed at the moment - the £15764.

The difference between your current balance and the settlement figure will be the early settlement penalty which is usually 2months interest.

If you didn't settle early and carried on making payments to the end of the loan you would pay a further 48 payments so £19,256. So by settling early and paying £16204 you do save money - you'll save over £3k in interest.

chris-j

Since the abolition of Rule of 78 interest should be balanced across loan period. Based on your monthly payments this looks like your settlement figure does not take into account the September payment - loans are notoriously slow at recording most recent payments. Strange though having 59 repayments rather than 60. I'd check with bank again and ask them to verify if most recent payment included.