What to do.....

djmike

Hi,

I'm new to MSE and would dearly love some advice on what to do regarding a rather large loan I have....

Basically, I have recently divorced and part of the settlement of that was to pay off a £25,000 loan we took out whilst we were together. I serviced the loan for just over a year (18 payments made) at £560 per month over 62 months.

The money is sitting in my bank, and it's tempting not to pay the loan back as all of the previous payments I've made have surely gone to service interest up front?

I've been advised that since I am now living in rented accommodation and come to get a new mortgage, my lending ability will seriously be diminished if I am still servicing this loan. Makes sense....£560 per month extra commitment etc.

It just narks me to think I've paid 'Company X' all this money in interest for nothing.

My other way of thinking is, make the other 44 payments left' at £560 per month, and at the end of it, I'll have £50,000 house deposit instead of £28,000 which is roughly what I'll have left if I pay this huge loan off now (£21,000 remaining).

Any advice will be much appreciated. :beer:

Thank you.

dealer_wins

djmike wrote: »

Hi,

I'm new to MSE and would dearly love some advice on what to do regarding a rather large loan I have....

Basically, I have recently divorced and part of the settlement of that was to pay off a £25,000 loan we took out whilst we were together. I serviced the loan for just over a year (18 payments made) at £560 per month over 62 months.

The money is sitting in my bank, and it's tempting not to pay the loan back as all of the previous payments I've made have surely gone to service interest up front?

I've been advised that since I am now living in rented accommodation and come to get a new mortgage, my lending ability will seriously be diminished if I am still servicing this loan. Makes sense....£560 per month extra commitment etc.

It just narks me to think I've paid 'Company X' all this money in interest for nothing.

My other way of thinking is, make the other 44 payments left' at £560 per month, and at the end of it, I'll have £50,000 house deposit instead of £28,000 which is roughly what I'll have left if I pay this huge loan off now (£21,000 remaining).

Any advice will be much appreciated. :beer:

Thank you.

Nothing???? The £25000 which they have lent you is not nothing!!

djmike

Sorry, probably a bad way of phrasing....

Not 'nothing' obviously they've charged me interest....my point is that I've already 'serviced' the interest, so if I pay back the capital now, it kind of feels like I've made the payments for nothing. Does that make sense?....

R_P_W

No it doesn't make sense. You borrow money you pay it back with interest.

What are you suggesting? Not paying it back? Good luck with that!

fozmcfc

Just be thankful, that for such a large loan it is being paid off quickly.

There are many people, who have taken out ridiculously large £25k loans with companies like Picture, First Plus, Nemo, Ocean finance etc, without really thinking that the small payment each month will end up with them paying £60k back over 20 + years.

Yours is very small fry compared to them and if you have the money and can save a few thousands in interest, by paying it off early, would be advised to.

John1993_2

djmike wrote: »

I have recently divorced and part of the settlement of that was to pay off a £25,000 loan...

...it's tempting not to pay the loan back

I think that the key parts are what I've quoted above. You are saying that it's tempting to break e terms of your divorce settlement. I think that you are supposed to stick to deals that you make, it's generally the right thing to do.

On the questio of you having paid the interest already, that'd be a little unusual. Interest is generally levied on the outstanding balance, not front-loaded. The interest paid so far has been for the use you've had of the money so far. It's not likely that it's stopped accruing now.

SeanG79

Have you asked them for a settlement figure? As much as you've paid 18 months there will still be 44 payments which all have some portion of interest. Get a settlement figure as opposed to an outstanding balance and then use the lump sum to settle the finance, their will likely be a rebate in interest which will save you in the long term

djmike

Thanks for the advice all. Lol - no there's no intent never to pay the loan back. The question was do I just carry on paying the loan until the end of it's term and use the money as a deposit on my new house. As I've always serviced the loan and it was purely in my name, there is no legal obligation to 'settle'. Just, as I've made this many payments....do I carry on or settle.

Think I've got the idea now. I suppose any kind of debt is just that (ie not savings). So as tempting as it is to look at a large bank balance (that's maybe going to earn me 1-2% p.a), surely it makes sense to pay all debts off first!.

Got it, thanks.

27col

Ignoring the interest implications. I for one, would rather have money in the bank, even at a low rate of interest, than £25,000 of debt.
Why would any sane person pay interest if they did not actually have to. Bit of a no brainer as far as I am concerned.

rabbit_burrow

It would be better to pay off the loan with the money you have and then save for the next 3-4 years.

For example, if you keep the money you have in the bank earning a small amount of interest, but keep paying the loan for 44 months, then the lump sum is all you'll really have (plus around 3% pa?)

If you pay off the loan now, and save the equivalent to the monthly repayments you would have been paying, for 44 months whilst gaining interest along the way, how much will you end up with? A darn site more I would say.