Increase repayments on car finance to reduce overall interest

BattleMoose87

Hi all,

I've had a look around the site and elsewhere on search engines to no avail. I'm unable to contact Santander as they are only open Mon-Fri 9am to 5pm.

My question is this: I have a Fixed Sum Loan for a car I purchased 5 months ago. I have been thinking of increasing the amount of repayment as the salesman said that each month I am paying roughly £40 in interest, and that by increasing repayments it will lower the total interest that I pay back. For example, if I was to increase repayments by £50 I could pay off the same total amount (inc interest) 18 months earlier. However, this doesn't take into account the fact that (according to the salesman) I may avoid 18 months of interest 18 months x £50 = £900.

TL;DR by increasing my monthly repayments will I avoid interest if I pay the total off sooner?

Thanks

Nebulous2

You need to check the paperwork that came with your loan to see what it says about overpayments or additional payments. There might be some penalties, such as a month's interest on the amount overpaid.

Generally though the answer is yes. You will save a great deal of interest by paying more. If you pay £50 extra in a month that will reduce the capital amount you pay and the next month you will save interest on £50. Repeat and you will save even more.

Play around with this calculator http://www.whatsthecost.com/snowball.aspx and it will show you how quickly you can pay it off and how much interest you can save - assuming no penalties. Even if there are penalties it should still very much be worth doing.

BattleMoose87

Nebulous2 wrote: »

You need to check the paperwork that came with your loan to see what it says about overpayments or additional payments. There might be some penalties, such as a month's interest on the amount overpaid.

Generally though the answer is yes. You will save a great deal of interest by paying more. If you pay £50 extra in a month that will reduce the capital amount you pay and the next month you will save interest on £50. Repeat and you will save even more.

Play around with this calculator and it will show you how quickly you can pay it off and how much interest you can save - assuming no penalties. Even if there are penalties it should still very much be worth doing.

Thanks for the help. :T

The paperwork makes no mention of any early repayment fees, just a completion fee regardless of when that is. I'll contact them next week to confirm.

CKhalvashi

BattleMoose87 wrote: »

Thanks for the help. :T

The paperwork makes no mention of any early repayment fees, just a completion fee regardless of when that is. I'll contact them next week to confirm.

You should be ok then.

Many do contain clauses, so looks like you've done well

supersaver1000

Just saw your post. I can make extra payments off my Vw finance loan. I paid off an extra £65 for the first time this month and it reduced the payments by £2 and the overall interest by something like £12. There were a couple of options for reducing the length or the payments but it was so little I just opted for the payment reduction this time. I just have to call Vw and can do it over the phone with a credit card.

Hope that's useful info.

izoomzoom

I overpay my husbands car by £47 a month. When we spoke to the finance company, it meant that the car would be paid off in 4 years, as opposed to the original 5.

BattleMoose87

supersaver1000 wrote: »

Just saw your post. I can make extra payments off my Vw finance loan. I paid off an extra £65 for the first time this month and it reduced the payments by £2 and the overall interest by something like £12. There were a couple of options for reducing the length or the payments but it was so little I just opted for the payment reduction this time. I just have to call Vw and can do it over the phone with a credit card.

Hope that's useful info.

izoomzoom wrote: »

I overpay my husbands car by £47 a month. When we spoke to the finance company, it meant that the car would be paid off in 4 years, as opposed to the original 5.

Thanks both :beer:

I'm looking at paying off a lump sum amount of roughly £1000 and see how that affects the monthly repayments, and comparing to how long it will take to pay off if I maintain current payments.

Another option is to pay the lump sum of £1k then increase my payments by around £50.

Upon reading the small print I can confirm the interest is payable at a rate of £1.29 per day, so roughly £39 per month.