Small payments or one big payment?

Charityworker

I have a loan of £14,000 (or at least thats what it was last time I looked - might have gone down to about £13,000 by now). The interest rate is 7.2%. Last year I paid a little extra off it every month of whatever I could afford so some months it was only £10 and others it would be £400 depending on what I managed to scrape together. This year I have been doing the same saving and scraping but putting it in the 'sealed pot' (savings account). Do you think it's better to carry on sending a payment every month or wait a year and send a large sum all at once? I managed to cut an extra year off the loan last year and am hoping to do the same this year and next year.

cottonhead

I would pay little and often for the following reasons - it makes you feel so positive to be making headway. I decreased my overdraft yesterday just by a little but it made me feel so positive that its going in the right direction. I will now do this every month. Next reason is if you save up the money there might be the temptation to dig into it or just some or all of it for something else. The final reason is that you will be saving interest the quicker you get the balance down.

Oneday77

It all depends on whether you can save and not spend, can you make overpayments without penalty, how long does it have to run, are you in arrears, etc?

Loans are typically front loaded with interest so unless you overpay in a balance clearing amount you may not save any. So if you could save up £10k while making regular payments you may benefit otherwise mak extra payments when you can just to pay it all back earlier.

Charityworker

Thanks for your replies. I'm usually very good about being disciplined and not spending it. It's not in arrears at all. I think I'll send them a cheque today for however much I've managed to save up.