To Repay in full, or by instalments?

Luffer

Hi,

I currently have 19 payments to make on an Egg loan, with a total balance of £3552 outstanding, which I pay back at 190 / month.

Most advice is that I should clear the debt before begining to invest, however it seems to offer little in the way of saving.

Last settlement figure was £3,551.97 if paid in full. If I keep up instalments the total is approx £3,591 an extra £40.

Would I not be better depositing £3600 in a 5% savings account, giving an average balance of 1800 over 18 months and earning interest on this, whilst making the £190 / month payment from this account?

The interest earned by my basic calculation is greater than £40.00.

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NB - Figures provided by Egg as follows

The settlement figure that you where given was ?3,551.97 and is valid for 10 days from when you where given the figure.

The figure on the Egg Website ?3,536.77 is the balance for your Egg Loan account as of the last Direct Debit received. The difference in the 2 figures is the interest from the last payment till the day the settlement figure is valid until.

If you don't settle your Egg Loan the total repayable would be approximately ?3,591.00 over the remaining 19 payments.


Thanks

Nick

Raspberry_Ripples

What interest rate are you paying on the loan?

Say it's 6%, then you're paying 6% in interest, but getting 4% on your savings (5% less tax at 20%).

If you're paying less that 4% on the loan, the stick your money in the bank, otherwise pay the loan off.

...that's what I'd do anyway!

RR

Luffer

Hi Raspberry_ripples

6.9 Fixed.
The interest rate tells me to pay the loan off as its costing me an extra 2% per year approx.

However, Eggs figures suggest differently

Raspberry_Ripples

Judging by the figures they have quoted you, they've front loaded the interest so the first lot of payments you made covered their interest and now you're paying back the loan amount. IF this is the case then you should be entitled to a refund of some of the interest back (does this make sense?). Call them and confirm.

I'm no expert, but this is what happend to me the last time I took a loan out and repaid it early. Perhaps someone here more knowledgable knows better?

In your shoes, if I was confident I didn't need the money on the next 12 months say, I'd use it to pay the loan off.

Rafter

The numbers you have given look really strange!

With 19 months left to run there should be much more interest payable and the settlement value should be less.

The only reason why this might not be the case is if you took out payment protection insurance or if there is some kind of early settlement penalty on the loan.

If the figures are right, as you say, regardless of the APR you are better off saving since you will earn more interest on savings than you will save by paying off the loan early.

Good luck.

R.

Luffer

There is no PPI on the loan, and according to Eggs website, no penalty for early settlement.

I did take a payment break once, interest still accrued and the additional interest was added to the loan and the premium increased to compensate.

Im asking as I obviously thought repayment would offer savings greater than any available interest.

Egg seem to agree - in the 3 weeks between making the last payment and requesting a settlement figure, my debt increased from £3536.77 (on website) to £3551.97 (settlement figure), suggesting interest charges in excess of £15 / month.



I will contact Egg and ask them to re-check the figures

Luffer

Luffer wrote:

There is no PPI on the loan, and according to Eggs website, no penalty for early settlement.

Im asking as I obviously thought repayment would offer savings greater than any available interest.

Egg seem to agree - in the 3 weeks between making the last payment and requesting a settlement figure, my debt increased from £3536.77 (on website) to £3551.97 (settlement figure), suggesting interest charges in excess of £15 / month.

I will contact Egg and ask them to re-check their figures

EDIT ---

Checked with Egg and the mistakes was at their end.
Revised figures are now

18 remaining payments at £189 = £3402.

Settlement Figure = £3220.80

Saving = £181.20