Early repayment of loan

JohnBrown123

Hi,

7 years ago I took out a loan with the Royal Bank of Scotland for £15,000, which has equated to 84 monthly payments of £260 per month. Roughly £200 for the loan and £60 interest.

I thought about paying the remaining £1300 I owe now to complete the loan, but when I asked for a settlement figure I was told £1280.

Does that sound right in this circumstance? A £20 saving does not appear to be much. I thought the settlement figure would be much lower (circa £1000) as I wouldn't be paying the interest for 5 months?


Any help appreciated.

P

Cycrow

with loans the interest is based on the capital, so at the beginning of the loan, where there is more capital, the interest is much higher.

as you are nearing the end, the capital is low, and therefore, so is the interest.

plus, theres usually a cost to settle early, which can often be 2 months worth of interest, so it may only be 3 months worth of interest you are saving, and on a small amount of capital left, wont be that much

Tixy

You repayments were not £200 for the loan and £60 for interest.
At the start you paid far more than that in interest per month and so less paid off the capital, as the debt reduces you pay less interest and more capital per month. In month 1 the interest would have been around £142.

Based on your loan details after 79 months the capital owe would be approx £1264 add to that 2months settlement interest of around £22 and you get £1286, so yes their figures looks correct.

If you put the figures into any online loan calculator you will see how the balance reduces during the period - e.g. this one http://www.theguardian.com/money/loan-repayment-calculator-interest-rates

comeandgo

Yup, that settlement does sound right, there is not much interest on £1,300 reducing loan.

redpete

The proportion of capital/interest in each monthly payment changes during the life of the loan. At the beginning you owe more money so the amount of interest is higher each month, at the end most of the monthly payment will go towards reducing the capital.

I reckon your interest rate is about 11.5%. With 5 payments left you'd be paying maybe £38 interest in total if you continued paying £260 a month.

JohnBrown123

Ahhh, I see.

Thanks very much guys :-)