if overpaying loan, shouldn;t monthly payment change?

qwertyjjj

Under the new regulations if you overpay a loan, shouldn't they change your monthly payment amount?
The bank is saying that if I overpay, the monthly payment remains the same, it just gets paid off sooner.
Whereas I have checked some other companies who say that they change the monthly payment amount and it reduces so the term of the loan remains the same, which is the opposite.

kiazoe

Maybe it depends on the lender, but I recently overpaid on a Santander loan and they asked me which option I would prefer (reduced term or lower payments).

cripes_2

Monthly payment amount usually stays the same,

the new rules must mean they re-calculate the interest based on the overpayment, It just means the loan gets re-paid sooner...

some companies allow underpayments for the balance of the overpayments,

ie if you have made £500 of overpayments you can then make £500 of underpayments providing you tell them

R_P_W

Isnt the point of overpaying so that you pay it quicker and therefore pay less interest?

qwertyjjj

R_P_W wrote: »

Isnt the point of overpaying so that you pay it quicker and therefore pay less interest?

There's a cashflow aspect to it as well.
Overpaying to reduce the monthly amount, waiting a while, then overpaying again can have just as good an effect.