Pay off loan or save?

oble03

Hi,

First time posting here, what a great site!!!

I have a bank loan with an outstanding balance of £7593. The early repayment figure today is £6988. Due to a fortunate change in circumstance I will be able to pay about £1000 extra every month to clear the loan balance ASAP.

The £1000 additional payments I make will be taken from the outstanding balance of £7.5K, not the £6.9K. The monthly direct debit will remain the same, but the loan period will reduce.

My question is......Am I better off paying an additional £1000 per month until clear or should I save the £1000 in a savings account until I have the amount of the early repayment figure?

I think I am better off saving then paying in full because that way I am paying a lesser figure but I fear I am missing something obvious.

Any help clarifying this is very much appreciated.

Thanks.

bengalknights

As interest is low its better to pay the loan off as its higher amount of interest than what you would earn in savings.

Apples2

Pay off the loan. Each month you are paying interest on it which is MUCH more then you will receive in Savings Interest.

You'll be saving chunks in Intererst every month, the loan goes down quicker, your savings will go up quicker (because they aren't being offset by your interest payments)

oble03

Thanks guys....seems obvious now :-)

oble03

Just called and paid the first £1000......

They advised me there would be "no interest benefit and the money would come off the total balance of the full loan term including interest".

I guess I should have checked the Ts & Cs when taking it out.

Would you still say I am better to pay off lump sums?

Stephen_Leak

Drat. Some lessons cannot be taught, they have to be learned.

You still ought to pay off the loan, but there's no incentive to do so early.

Plan B. What about opening up an easy access savings account, and "paying off" the loan into this. Then, when it is the amount of the loan, pay it off. At least your money is working for you and earning you some interest in the meantime.

However, this does mean that you shouldn't dip into this account. If you don't think that you could do this, then paying the money to the loan company at least gets it out of harm's way!

Penny_Bridge

I wanted to overpay a bank loan and phoned them to enquire about it. I was advised that I would be charged for every extra payment and that I would be better to put extra payments into a savings account and pay it off early in one lump sum.

I don't quite understand the 'in and outs' but I am going to save the money separately and when I'm able pay it off in one payment.