Early settlement figure

andys15

Hi. I will shortly be paying off two loans early. My tesco loan appears to have added interest at the start of the loan and the settlement figure is a lot less than what it shows I owe. I have overpaid considerably in the past and received interest rebates which came of the balance and shortened the term. The settlement figure comes with 2 months charge. My other loan is natwest. The settlement figure for this loan is actual more than I currently owe, as it includes 2 months fee, and the loan appears to only charge interest on a monthly basis. The question is, can I avoid any of these fees by doing large payments but not quite paying them off. Many thanks.

[Deleted User]

You can generally avoid the 2 months interst charge by doing as you suggest.

But with regards to how they charge interest, both charge interest monthly.

andys15

Hi yes. I mean the tesco one was front loaded so I am paying interest on the interest and therefore getting a much lower figure to what I actually owe. So the tesco one, it says I owe 20k, which was a 25k loan over 10 years with about 5 years remaining. But if I pay off it is 16k. The natwest one is 15k and just over a year in. It says I owe 11k but to repay would cost me 11.2k. So what do I do? Pay 10k off one month and then 1k the next month or pay 10.9 k off and reduce the term and let the dd of £100 come out the month later?

ViolaLass

andys15 wrote: »

Hi yes. I mean the tesco one was front loaded so I am paying interest on the interest and therefore getting a much lower figure to what I actually owe. So the tesco one, it says I owe 20k, which was a 25k loan over 10 years with about 5 years remaining. But if I pay off it is 16k.

It isn't front loaded, you've just been quoted the amount that it would cost you if you made all the payments as planned i.e. if you didn't overpay. If you settle early, there will be less interest to pay overall, hence the lower settlement figure. By comparison, Natwest have shown you the amount you owe there and then, not how much you would have to pay if you kept making payments as planned.

CLAPTON

andys15 wrote: »

Hi yes. I mean the tesco one was front loaded so I am paying interest on the interest and therefore getting a much lower figure to what I actually owe. So the tesco one, it says I owe 20k, which was a 25k loan over 10 years with about 5 years remaining. But if I pay off it is 16k. The natwest one is 15k and just over a year in. It says I owe 11k but to repay would cost me 11.2k. So what do I do? Pay 10k off one month and then 1k the next month or pay 10.9 k off and reduce the term and let the dd of £100 come out the month later?

The tesco loan WASN'T front loaded as that would be illegal.

They just choose to show the total of capital and remaining interest for your convenience.

You DONOT pay interest on the interest.

chambta

andys15 wrote: »

Hi yes. I mean the tesco one was front loaded so I am paying interest on the interest and therefore getting a much lower figure to what I actually owe. So the tesco one, it says I owe 20k, which was a 25k loan over 10 years with about 5 years remaining. But if I pay off it is 16k. The natwest one is 15k and just over a year in. It says I owe 11k but to repay would cost me 11.2k. So what do I do? Pay 10k off one month and then 1k the next month or pay 10.9 k off and reduce the term and let the dd of £100 come out the month later?

They are calculated the same but presented differently if you look at your online banking with either for example.

andys15

Ok guys. Thanks for explaining. Now how should I pay these loans to achieve money saving?

chambta

What are the APRs and respective terms remaining?

andys15

Ok. Tesco one. 8.32% with about 5 years remaining. Pay 310.42 pm. The other one is about 4.5% with about 3 years 10 months remaining. They both being paid off.

chambta

In that case given I think both are calculated the same way I can't see how you can save any more than paying them both off immediately at the figures quoted.

If both partial and full repayment attract the same 'penalty' of interest (ie 58 days interest) then there is no way around unless I'm missing something.

andys15

I just assumed that a full payment warranted a penalty, but a partial penalty didn't. Therefore by paying off the majority and reducing the term to one month, would then be penalty free.