Paying off debt early

datlex

I have a loan with one of my banks payments are up to date and it is due to end in 2017. I made enquiries with them about making extra payments to clear the loan quicker. This was their response:
"If you was to go against the information provided and make additional payments to the loan manually (not
completing a partial settlement or full settlement as advised in the previous message) nothing would happen
immediately.

However it could get to a point where the extra funds you've paid in clears the loan balance, but as it hasn't
been completed under the correct process it could continue to debit the monthly standing order and end up
overpaying on your loan.

It could also affect future applications for borrowing as you would be going against the terms and conditions of
the credit agreement."

Seems a bit harsh to me that you can get penalised for clearing a loan quicker?

autumn2012_2

Put the money in an account and make a partial payment

sourcrates

Hi,


A personal loan is not like a mortgage, where you can over pay if you choose, to clear it quicker, the term of loan, and the interest, can be varied in a mortgage, in a loan, it cant, as its a "fixed term agreement".

For example, you borrow 10k, the interest is 2k, over 5 years fixed.
in total you would repay 12k, and you would sign an agreement to say as much.

If you start paying more than has been agreed, its technically breaking the terms of the agreement, stupid I know, but that's banks for you.

What you can do is ask for a "settlement figure" to pay off the loan early, normally the bank would calculate a rebate of interest till the end of the agreement, then deduct that figure from the outstanding balance, giving you a figure they would want in order to clear the account.

This you can do under the terms of the consumer credit act without any detrimental affect on your credit file.

CrowCrow

sourcrates wrote: »

Hi,


A personal loan is not like a mortgage, where you can over pay if you choose, to clear it quicker, the term of loan, and the interest, can be varied in a mortgage, in a loan, it cant, as its a "fixed term agreement".

For example, you borrow 10k, the interest is 2k, over 5 years fixed.
in total you would repay 12k, and you would sign an agreement to say as much.

If you start paying more than has been agreed, its technically breaking the terms of the agreement, stupid I know, but that's banks for you.

What you can do is ask for a "settlement figure" to pay off the loan early, normally the bank would calculate a rebate of interest till the end of the agreement, then deduct that figure from the outstanding balance, giving you a figure they would want in order to clear the account.

This you can do under the terms of the consumer credit act without any detrimental affect on your credit file.

Ergh, what? EU regulations make it clear, you can over pay personal loans without charge at any time. You can settle early with a maximum of 2 months interest as a penalty.


The Consumer Credit (EU Directive) Regulations 2010

Section 94 and 95

Early part-repayments are allowed

If your loan was taken out on or after 1 February 2011, you can make partial overpayments on your loan. If your extra repayments total under £8,000 in a year, banks are not allowed to charge you a fee for making an overpayment. But if your overpayments total over £8,000 in a year then the bank is allowed to charge you so long as it has incurred a charge itself.
Full early repayment

Loan providers must allow you to pay off your loan in full. This is usually subject to a penalty which is usually between one or two months' interest. Check your individual agreement to see what your lender will charge you.

http://www.moneysavingexpert.com/loans/cheap-personal-loans


As for your credit score, it's one of those things that no one really knows. Consensus is that's it neutral, neither negative nor positive. You need to remember just because someone answer the phones for a bank, doesn't mean they know anything about the banks credit scoring algorithm. You keeping the loan makes them money.

sourcrates

Depends on what it says in your individual agreement crow crow.

That overrides anything else.

CrowCrow

sourcrates wrote: »

Depends on what it says in your individual agreement crow crow.

That overrides anything else.

No that couldnt be more wrong.

Law 101, an Act of Parliament overrides everything that comes before it.

An Act of Parliament allows for overpayment with no/minimal penalties. Terms and conditions that contradict this are void for law