Loan repayment level set too low to pay off loan during term

William_young

I have an loan half way through its term. I just calculated that with the current repayments it wont pay everything off in time.

I took a 10 year loan, fixed payments, variable rate. I have continued paying the same despite the interest rate drop to shave years off.

The loan was agreed as 10 year, 120 payments at this level, but looking at some of the other quotes its now clear they have set the payment level based on 15 years, 180 payments.

I cannot afford to up the level of payments & the 'years shaved off' wont mean I have paid it all back in the 10 years.

Do I point it out now, wait to the ten years is up or what - it now a time bomb, it doesnt help that the asset has lost 66% of its value because of the current economic climate.

ILW

You do realise that the amount of interest will be dropping as the capital amount decreases.

StuC75

probably need a few more facts to weigh up your concerns (Amount \ Std Payment & Rates quoted) to confirm what you think has happened.. What are your annual statements showing?

William_young

Yes I know that the capital & interest will cross at some point.


Borrowed £81K
120 months
2% above base rate
Base at start 5.25%
Base now .5%
Payments £760 pm

Just shy of £51K remaining as of this month

StuC75

Is the £760 pm the current payment amount, how has the lender treated the overpayments? in changing the term or payment - as the original 7.25% rate (5.25 base + 2%) would have a payment nearer to £950 (using basic excel pmt calculation).. Also calculating the balance remaining (using Cumprinc - on basic amounts could suggest between 43k-47k remaining but that is just using basic standard payments throughout - in absence of seeing the overpayments and there timings).


Were there any other fees included in this (ahem ppi frontloaded?)...

Have you been getting annual statements showing what is crediting \ debiting to the account..

William_young

£760 is the only payment rate I have made, the agreement was any drop in interest rate would simply mean I would pay off more capital sooner, in hike in rate & they would contact me to discuss options.

This included a £800 fee, which I may have paid off on exchange.

Yes I get statements but I never had reason the question them.

I have taken no payment holidays nor made an lump overpayment

StuC75

In that case strongly looks like it has been set up over 15 years then - particularly if thats the payment amount. Would be looking for copy of the agreement / confirming what shown on the statements then..

William_young

The agreement says 10 years, 120 payments

zxspeccy

This is certainly not a 10 year loan and does look nearer the 15 year mark.
Does your agreement have any other details on it other than the amount, interest and term of the loan?

From my rough calculations a balance of £51,000 at rate of 2.5% (base+2%), with repayments of £760 per month would take another 6 years to pay off. This is on the assumption that the base rate does not change, meaning the loan get paid off after 11 years approximately.

jonesMUFCforever

William_young wrote: »

Yes I know that the capital & interest will cross at some point.


Borrowed £81K
120 months
2% above base rate
Base at start 5.25%
Base now .5%
Payments £760 pm

Just shy of £51K remaining as of this month

This loan is not regulated by the CCA and is probably secured on a property.
Whilst the agreement may state 120 repayments of £x I bet there will be clauses in it dealing with the variable interest rate.
How could they possibly know what future interest rates would be and therefore what repayment would be needed to pay it off.
You can do 2 things - carry on as now and see what is left after 10 years or start paying more now.
As I say there is no CCA to lean on here - if the debt is secured you will need to pay it back in full.