Surely this can't be right (Flexi Loan) ?

muran_2

Firstly, a little about the circumstances surrounding this query...

I am looking to borrow about 3k to pay off an existing unsecured loan (that formed part of my mortgage agreement). The house now sold, I have paid off the secured part and some of the unsecured with the proceeds of the sale.

The remaining unsecured is charged at a high APR and I therefore wish to take out another loan with a more favourable APR to clear this one.

I am not completely sure how long it will be before I am able to repay the loan, therefore I am looking at a flexible option.

After consulting this site, I went with the Northern Rock offering REFERENCED HERE

On receiving the paperwork; apart from the APR being higher than advertised (I know this is a typical rate), the amount of interest I would pay over the loan period was outlined quite clearly and the wording of the small print implied that I am able to make overpayment and to repay the loan early but the interest rate would remain the same (expected) and the total amount of interest repayable would also remain the same (not expected)!

Surely these terms totally contradict what I understand to be a flexible loan; one which will allow over-payments and will allow me to repay the loan in full whenever I like and without penalty. Furthermore, I would expect to pay interest on only the amount I borrow and for the period of the actual loan. Ie. if I repay a loan with a five year term in two years, I would expect the interest on the borrowing to be far less than originally outlined based on the original five year term agreement.

Am I mistaken or is my understanding of how a flexible loan should work correct?

Thanks in advance.

CLAPTON

Without seeing the paperwork it's impossible to say.

But the amount that they can charge for early settlement of the loan is determined by the CCA and so you will NOT pay the full amount of interest.
.
however, making overpayments is not regulated and they can choose not to reduce the interest. You need to read the paperwork very closely.
However, if this is the case then you can always save the overpayments in a saving account until you have sufficient to settle the loan.

It would seem that NR do not reduce interest on overpayments.

on their FAQs it says


Yes 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.