First Direct Loan Overpayments

Atirez

Hi all, I was hoping you could help me work out how my overpayments are affecting my interest on the loan.

I took out a loan for 25k and was told the total interest was a horrendous 7,029.00 so around 11.9% APR. I needed it for Debt consolidation and so it worked out better for me at the time. Anyway!

I have "Loan Amortization Schedule" I downloaded off the internet but that seems to work out compound interest on the outstanding capital of the loan. So every time I enter an overpayment my interest payments are reduced a lot (especially since this is still quite a new loan).

However, I have phoned up First Direct and they told me the loan is front loaded and payments I make later on will have less effect on the overall interest to pay as the interest will have already been paid off... Which sounds like my spreadsheet is not going to provide correct values.

What I would like to do is make sure I am not overpaying a loan and not getting good returns, interest wise, and if the payments are different I can look at making early overpayments and then perhaps save to settle the loan in it's entirety when overpayments make less financial sense. But I am not 100% sure how I can calculate all of that based on my conversation with FD. I can phone up for settlement figures all the time, but seeing how my debt is reducing in a spreadsheet is highly motivating for me - so would like to have something that works.

Sorry for the huge post and thanks in advance for you help!

ViolaLass

You pay more interest at the beginning because you owe more. As the amount you owe decreases, so does the amount of interest you pay each month. That's not front loading, it's just how loans work.

Provided there are no fees/charges, it will ALWAYS be worth overpaying your loan.

Atirez

Hi, thanks for you response. That is how I understood it also. However I was informed on the phone that "the interest is front loaded". Further the schedule I downloaded shows me currently as owing 19,200 but the settlement figure is 20,550. That is a difference of over 1,200! I expected a slight difference but not to the effect that my projected end date is going to be several months before my actual end date.

What is the best way to calculate how overpayments are effecting my interest and final settlement figures? I want to be able to, as is reasonably possible, calculate this so I can better budget for paying this off and saving a deposit for a house.

ViolaLass

It's not unusual for bank staff to not entirely understand the products offered by their bank. 'Front loaded' means you pay all the interest first, then the capital which would mean you wouldn't get any benefit from paying the loan off early. This isn't how loans work now but not everyone gets it. You are paying more interest at the beginning because you owe more money, not because it's front loaded.

The settlement figure may include two months' interest - this is often charged if you pay it all off early. Check your T&Cs to confirm.

Without seeing your 'schedule' I can't comment but I haven't seen anything yet to suggest that it's wrong (except that it won't know about any fees for over/early repayment).

Atirez

I have been using this one: http://www.vertex42.com/ExcelTemplates/excel-amortization-spreadsheet.html.

Details of loan are:
Loan: £25,000
Period: 54 months
Total repayable: 32,029
First payment of: 592.58 subsequent payments 593.14

Effective rate: 11.296
Simple rate: 11.9
APR: 11.9
No arrangement fees.
Early repayment: up to 28 days of interest.

Is there any better spreadsheets or methods for getting more realistic figures based on that information?

Thanks again.

Tixy

That spreadsheet should be fine for what you want to do, there would be some minor discrepancies depending on the actual date you are paying the overpayments etc but its odd that your balance + a months interest is so much less that their settlement figure.

How recent was the last payment? I wonder if you have included a monthly payment / an or overpayment that they haven't allocated yet?

Atirez

I made my normal monthly payment today and overpayed by 900 yesterday. She did say on the phone that it includes everything and is based on a calculation to 3rd March.

Normal payments are on the 1st of the month. Overpayments are whenever I have etc money to throw at it.

Hmm, perhaps that is the reason for the difference. But I would have thought a final settlement figure on the phone would take everything in to consideration.

ViolaLass

Atirez wrote: »

I made my normal monthly payment today and overpayed by 900 yesterday.

For all that the person on the phone said it included everything, it's still possible that the bank's system hadn't fully processed your overpayment yet.

Atirez

ViolaLass wrote: »

For all that the person on the phone said it included everything, it's still possible that the bank's system hadn't fully processed your overpayment yet.

That would make sense. £900 + 28 days interest is probably the £1200 difference.

Phew! Thought after that call I was in a worse state than I am.

Tixy

Given the numbers it would make sense that the £900 hadn't been credited yet. The remaining difference would be reasonable for the 28days interest early settlement and the precise timing of overpayments etc.

EDIT - cross posted!