Is there a loophole for reducing settlement figures?

sophistry

Hi - I've just come into some money and can pay off my bank loan. I originally borrowed £25,000 in october last year, at 6.9%. My bank are quoting a settlement figure of £24,100. Now, I've been paying off the loan for six months at £394.07 a month, so that mean its costing me just of £1400 to borrow that money for six months - outrageous! My bank manager has told me this morning that there's a penalty of two month's interest for paying off the loan early. The penalty is worked out based on the interest that would be due for the next two months from the date I pay off the loan. My thinking is, if I ask them to pay off, say, £23,000 now; then in a month's time ask them to pay off the balance, I should be saving a fair bit in the interest penalty. My bank manager 'couldn't comment' on whether this would work or not - surprise, surprise!

Anyone here got anything helpful to say on this - has anyone tried it?

Sarah

Phantom_Flan_Flinger

What you're saying is a good idea but it depends if your loan allows you to make overpayments, as this is how it will be classed. If you can, is there a limit on how much can be overpaid?

You need to check the T&C's that you signed up for.

dgncl

http://forums.moneysavingexpert.com/showthread.html?t=427486&highlight=dgncl+rule+78

Sounds like you've been bitten by the rule of 78! Check my post above, you could be entitled to a cheaper settlement amount.

rsykes2000

dgncl wrote: »

http://forums.moneysavingexpert.com/showthread.html?t=427486&highlight=dgncl+rule+78

Sounds like you've been bitten by the rule of 78! Check my post above, you could be entitled to a cheaper settlement amount.

Rule of 78 was abolished almost 2 years ago. If it was done under rule of 78, the settlement figure would have been *way* higher as in those cases, the interest is front-loaded so you immediately owe a substantial amount more than the original loan amount, which is not the case with the post above.
This is nothing to do with Ro78 - to me (and not knowing the number of years the loan was taken over), this seems about right for a settlement figure including a 2 month penalty, as the loan is only in very early stages, there will be negligible capital paid off, the majority of the monthly payment will be interest, with the proportion of interest in the montly repayment decreasing as the capital paid off increases.