Paying loan off early

simon1982debbie

Please help.

I have a loan with Lloyds tsb. I have received a settlement figure for £6511.86 valid for the next thirty days.

I have the money to pay this off, however when i went into the branch to do this today i noticed that this included an EARLY SETTLEMENT ADJUSTMENT of £172.19 so the actual amount I owed on the loan was £6339.67. Seems I am being penalised for paying the loan off early.

I queried this with the assisstant who informed me the early settlement adjustment figure was calculated as 58 days interest of the amount outstanding on the load, i.e £6339.67??????

Therefore i thought to myself why dont I pay off all of the above amount except for 1p, therefore not incurring the early settlement adjustment. The assisstants advice was that I should pay off £6000 and then see what happens as nobody in the bank could tell me what would happen, so I did this.

This now leaves me an outstanding balance of £339.67 on the loan. My question is what will happen when my next monthly payment is due? I usually pay off around £370 per month. Will the bank take out the outstanding balance of the loan, (£339.67)?, and if so will this mean my loan is now totally paid off and i do not incur the early settlement adjustment. Or will the bank adjust the monthly repayment figure to ensure the loan runs its full course (which i think is approx. 2 years remaining?

This all seems very strange to me and something the bank either genuinely do not know the answer or do not want to tell me as it looks as though I may have found a way not to pay the early adjustment figure.

Any help and advice on what i should do will be most appreciated.
Thanks, Simon

CLAPTON

paying most of the loan off it is a well recognised method of reducing the early penalty charge.

it works as long as the 'overpayment' you have made is allowed and does not attract it's own 'overpayment ' charge

simon1982debbie

So what will happen next month as my outstanding balance is less than my monthly repayment figure?

CLAPTON

one would assume they will take the amount required to settle the loan

Gareth19

simon1982debbie wrote: »

So what will happen next month as my outstanding balance is less than my monthly repayment figure?

I know what I would do. I bet a pound to a penny they will automatically take the usual amount then you will have terrible difficulty getting back what they owe you. I would cancel the dd/so then when they come calling for it send them a cheque or electronic payment. That way you dont spend months chasing your money but hey up to you what you decide

CLAPTON

Gareth19 wrote: »

I know what I would do. I bet a pound to a penny they will automatically take the usual amount then you will have terrible difficulty getting back what they owe you. I would cancel the dd/so then when they come calling for it send them a cheque or electronic payment. That way you dont spend months chasing your money but hey up to you what you decide

I would strong suggest that this is a very very very bad idea.

This could easily lead to breaking the T&Cs of the loan or in paying too little and having your credit record adversely affected.

Gareth19

CLAPTON wrote: »

I would strong suggest that this is a very very very bad idea.

This could easily lead to breaking the T&Cs of the loan or in paying too little and having your credit record adversely affected.

Just speaking from experience as I had this exact situation with a high street bank and I trusted them to take only the amount they were owed. They didn't and 5 months later they finally returned my £162.89. That was after constant nagging. All that will happen if you cancel your dd is that they will send you a letter or phone you advising you that your payment has failed and to pay by other means. As it is the final payment anyway it is fine. Companies do not update credit files until well after payment is due. Your payment can then be made a day or 2 late but at least you know the right amount is taken and account is properly closed. Like I said though up to you

simon1982debbie

If they take out the usual monthly installment i will only be £20 down anyway. This is far better than paying the £172.19 early settlement fee.

Gareth - Does this mean once the bank take out the last payment - my loan will end even though this is two years early and i wont have to pay any early settlement figure?????

Does all seem very strange to me.

Gareth19

simon1982debbie wrote: »

If they take out the usual monthly installment i will only be £20 down anyway. This is far better than paying the £172.19 early settlement fee.

Gareth - Does this mean once the bank take out the last payment - my loan will end even though this is two years early and i wont have to pay any early settlement figure?????

Does all seem very strange to me.

With my loan which was with HSBC they added an early repayment fee but it was based on the final payment amount and as it was so small (as is yours) I think the penalty was something silly like £7 so it hardly made a difference. At this point I would say it may be an idea to double check with your loan company about what will happen which in the end may save you from any nasty surprises but as your situation very cloely mirrors mine then you should be ok to pay it off now with minimal problems