Bank of Scotland loan (additional payments??)

mickaveli2001

I took a loan out, which I would like to make additional payments on, but to see whether or not it would be worthwhile making additional payments, I tested it with £10.00 first, as it stated that it would save me £22 on interest (see attached: http://i57.tinypic.com/23wuqz6.jpg) . I didn't know if that was interest on the next scheduled monthly repayment, or if that was for the overall life of the loan, though I assumed it would be for the next monthly repayment only.

Then the following month, it appears as if it's only really saved me £7 (164.44 interest charged as opposed to 171.13 the month before) not £22 as stated on the additional payments calculator. See attached http://i62.tinypic.com/14ctylz.jpg

I'm no good at understanding these things, but I would like to pay an extra couple of hundred a month to get it down and repaid quicker, but want to ensure that it's worthwhile to do so

Gaz83

You need to remember that paying extra to the capital balance decreases the interest due over the life of the loan, not just the next again month, as the capital balance reduces.

It'll always be worthwhile paying extra to a loan, unless you can get a savings account with a higher interest rate than the loan's APR (extremely unlikely).

stator

The £22 is probably the amount of interest you save over the remaining course of the loan, not every month
The £7 difference is due to the whole of the amount you paid, not just the £10, ie £239 + £10. The interest they add each month will go down every month. The £10 you overpaid will have only had a few pence effect on the interest added each month.
Have you checked the T&C of your loan? I hope you are allowed to make free overpayments!

mickaveli2001

Thanks for info. It's classed as a flexible loan, so I guess there would be free overpayments allowed, but again, I would probably have to check the T&C's or see if I could grab a copy of them online.