Best way of handling this loan?

fluffy123

Hi all, hope you are well.

Was just seeking some advice on a loan I currently hold with Tesco. The loan was taken out two years ago for £13000 in total and I'm currently halfway through paying it. However, I currently have £3,500 held in an ISA account which is due to pay interest in May which reduces the amount further. All in all, this means by November 2012, the amount left will the amount in the ISA.

How do I play this? Do I ask for a settlement figure, will this cost me more? Is there any way I can actually save money in this process? Or, would I just have to pay-off a big chunk and leave a nominal amount to be finally taken?

I hope this makes sense, thanks in advance

Jeff_Bridges_hair

are you wanting to pay off using your ISA when it matures? Just ask them for a final settlement figure..Shouldnt really cost you more it may even cost you less

fluffy123

As my ISA's first-year interest ends in May of this year, what I was planning to do was to keep on paying my loan as normal every month until roughly around the time that the amount comes down to the amount that is in my ISA, if that makes sense?

Thanks!

Tixy

Does the loan allow overpayments (as well as just paying off in full early)?

If so then in March you could use all your ISA to reduce the balance and then between March & Nov paying off your usual payment and what you would have put in the ISA).

Assuming they allow overpayments and that the APR on the loan is higher than the APR on the ISA then that should work out cheaper than waiting until Nov to pay off any extra.

fluffy123

Just been looking through the FAQ/T&C's and noticed the following:

Is there a fee if I settle my loan early?

Answer:
Early settlement fees may apply. You may be charged up to two month's interest if you choose to settle your Tesco Loan early.

Please Note: Interest is not pro rated over the term of your loan. The interest payable over the term of your loan is calculated by applying the agreed interest rate to the loan capital on the basis that you will be paying back part of the loan capital each month over your chosen term. Because your loan capital is higher in the early months of your loan this will result in a larger amount of interest being paid by you in the early months than in the later months.

Therefore the early settlement fee of up to two months interest will vary in amount according to the size and duration of your loan at the time you choose to settle.

Please refer to ‘Can I settle my loan early?’ for further details about the early settlement process.



Can I settle my loan early?

Any additional payments made will be applied to your loan and may reduce the number of monthly payments on your loan. However, there is no interest benefit to making an additional payment to your loan. This means that the amount of interest you pay on your loan will not reduce as a result of this payment, nor will you earn interest on the money sent.

CLAPTON

so it's saying there is no benefit in making overpayments
you need to wait unitl near November and ask for a settlement figure; although you will pay 2 months interest you will gain overall by avoiding the interest to the end of the loan period

fluffy123

So, say it gets to November and the amount left is say £3,300 left to pay on the loan by making payments every month. Technically, the settlement figure will be less than this, even with two months of interest off....?