Trying to pay off loan ASAP.

greenlightluke

I took out a loan for a car a year ago (4 years left of repayments to go) at the moment I'm paying 22.88% APR and £101.00 in monthly repayments.

I've applied for a Tesco's Bank loan to pay off the entire thing at 12.8% APR (over 2 years) - I was accepted.

A friend of mine who is trying to help has said that it's pointless getting this Tesco loan to pay off my Halifax loan because it won't reduce the costs.

The advice I'm looking for is whether he is correct? I'm aware that because it's a fixed loan I won't reduce the amount I owe, but I can reduce the amount it takes to repay. Is this a good enough reason? Am I doing the right thing? Or am I making unnecessary marks on my credit file?

I know you readers can't offer definitive answers - but advice would be great! Thanks in advance.

CLAPTON

It's a good idea as you will save on the interest by paying the Halifax loan off with your new loan.

greenlightluke

Thank you for such a quick reply @Clapton - When I rang up Halifax they did say I'd save £1200 in interest. I thought that was a good enough reason.

I wish (at the time) I knew more about loans, APR's etc. I wouldn't have took it. You live and you learn!

Thanks!

CLAPTON

greenlightluke wrote: »

Thank you for such a quick reply @Clapton - When I rang up Halifax they did say I'd save £1200 in interest. I thought that was a good enough reason.

I wish (at the time) I knew more about loans, APR's etc. I wouldn't have took it. You live and you learn!

Thanks!

yes, saving about 1,200 on the Halifax loan interest sounds about right although you will have to pay some (less ) interest on the new loan.

greenlightluke

CLAPTON wrote: »

yes, saving about 1,200 on the Halifax loan interest sounds about right although you will have to pay some (less ) interest on the new loan.

The new loan is £3,100 and the total repayable would be £3,608.10 I think I can live with that

pheonixrising21

greenlightluke wrote: »

The new loan is £3,100 and the total repayable would be £3,608.10 I think I can live with that

And the old loan would be £4,800+ if you repaid it in total!

If you don't mind me asking, how much is the new monthly payment and can you comfortbaly afford the £101 per month you were paying? I only ask becuase you could consider overpaying each month by the difference and pay off the loan quicker (or save the difference and pay off the loan when the settlement matches the savings). That will save you a bit more interest too!

greenlightluke

pheonixrising21 wrote: »

And the old loan would be £4,800+ if you repaid it in total!

If you don't mind me asking, how much is the new monthly payment and can you comfortbaly afford the £101 per month you were paying? I only ask becuase you could consider overpaying each month by the difference and pay off the loan quicker (or save the difference and pay off the loan when the settlement matches the savings). That will save you a bit more interest too!

The new repayment is £120.00 a month - I saved money on my insurance renewal this year, so I was considering using the difference I've saved (£40+) towards the new loan. Overpaying did cross my mind.
Thanks for the reply.

Rafter

Luke (and any others in a similar position)

Generally you will pay a maximum of a 1 month interest penalty for paying off an unsecured loan early, so if you can get a much better interest rate elsewhere, and you still have a while for your existing loan to run, then you are usually better off using this technique.

The problem is lenders don't generally like 'debt consolidation loans' and unless you have a squeaky clean credit rating and plenty of disposable income, the better value loan may not be available to you.

R.

JSR

You should also overpay most of the loan amount and let the final payment go out as normal. Overpayments don't carry any penalty but you may have to pay 1 to 2 months interest on a full settlement.

randomnut

JSR wrote: »

You should also overpay most of the loan amount and let the final payment go out as normal. Overpayments don't carry any penalty but you may have to pay 1 to 2 months interest on a full settlement.

Agreed. I've done this twice. Overpay by all but a tenner and then you're only paying interest on the tenner when that is taken out.

Beware though you need to have NOT asked for a settlement figure on the loan already, if you have, you need to wait for that to expire before making an over payment otherwise you'll end up paying the same amount from the settlement figure.

pheonixrising21

randomnut wrote: »

Agreed. I've done this twice. Overpay by all but a tenner and then you're only paying interest on the tenner when that is taken out.

Beware though you need to have NOT asked for a settlement figure on the loan already, if you have, you need to wait for that to expire before making an over payment otherwise you'll end up paying the same amount from the settlement figure.

I didn't know that, that's very interesting. Something to bear in mind in the future.