Advice re overpaying Northern Rock loan

cw635

I have a Northern Rock loan and overpayments are allowed but only shorten the life of the loan; they do not reduce the amount paid.
I believe I'm right in thinking that if you pay a loan off early you get a refund of some of the interest if the interest was calculated in advance (which mine is as it has fixed repayments)? I was just wondering if you would get the refund if you repaid early because of a series of overpayments or only if you settled the loan with a lump sum? I'd like to repay my loan early but don't know whether I'd be better off making overpayments or just saving up and paying it off in one go. Any advice?

Rafter

Add depends on the terms and conditions, but my understanding is that you would be better off making overpayments and that you would save interest, as interest is calculated monthly on the outstanding balance, regardless of the fact you have a 'fixed' rate loan.

Problem with saving up is that you are very unlikely to earn the same interest after tax on savings as you are paying on your loan - otherwise banks would all go bust!

I suggest you call them to clarify how often they calculate interest, and what the impact would be of setting up an overpayment standing order to your loan account.

R.

Phantom_Flan_Flinger

This is straight from their FAQ's

You can make overpayments at any time. Your monthly payment will not reduce and the total amount of interest paid will remain the same unless you settle your loan in full. As overpayments reduce your outstanding balance, you may be able to pay the loan off earlier than expected, as your loan term will reduce in line with any overpayments made. If you do pay off the loan early you may be entitled to a rebate of interest, which is calculated using the formulae prescribed by the Consumer Credit Act 1974