Large cashback on an HSBC loan

sh856531

Hi all

I have been helping my girlfriend get her finances in order. She currently has a 20K loan balance and 3K of it sitting in cash in her current account. My view was that she should pay this back straight away as she doesn't need it and will be paying a fair amount of interest just having it sit there.

However, when she called HSBC they told her that she would get a cashback payment of £593 at the end of the 5 year loan term.

I have two questions I am hoping someone with more experience could help with:

1. Does it seem likely that they would give nearly £600 back at the end of the loan? Is this some type of cashback bonus HSBC are doing as I have never heard of such a thing...
2. If we pay back the loan amount early - is the cashback amount likely to disappear?

The reason I ask is probably self evident. The £593 is quite a bit larger than the interest cost of the £3000 in cash (I think) which means I may be completely wrong about paying it back.

Can anyone advise?

Thanks in advance

S

somethingcorporate

Sounds like the interest saved on the 3k over the life of the loan. I've never heard of any other cash incentive to pay back part of a loan.

InsertWittyName

Is it one of those loans where 25% of the interest paid is 'refunded' back to the person assuming they've not missed (or been late) with any payments?

I'm pretty sure it was HSBC that were offering these 'cashback' loans.

Tixy

Yes there aer some hsbc loans around like this.

Does she have her original T&Cs? Hopefully that might state whether or not paying a lump sum early would change the cashback. It might well mean she was no longer eligible for any cashback, or might just reduce the amount she gets back (to reflect that she would be paying less interest anyway).

jonesMUFCforever

She needs to work out how much interest she will save on the £3000 repayment in comparison on the rate she earns on it and whether the cashback is more than amount saved.

sh856531

Hi all

Thanks for the replies

Actually I think I'm talking bobbins because the interest on 3000 for the remaining 4 years is probably going to be more than the 600 quid they give back.

I can't really figure it out accurately because I don't know how to calculate it because the 3K would be gradually reducing in the last year.

So I don't think its quite as simple as I originally thought

I think we'll just pay it off early

Thanks
S

Tixy

If you did want to work it out
First you have to find out whether paying early reduces the term or reduces future payments.

Then you just use a loan calculator for a balance of £20,000 at x% over x term to see what the total interest is (and minus the refund)
And then do the same for £17000 at x% and
if it reduces future payments then use the same term,
if it reduces the term I'd use trial and error on the loan calc until you get the correct repayment (the same as her current one)
and again work out the total interest she'll end up paying.