Nationwide - Early Repayment Of Loans

ceridwen

Hi

I am about to repay a couple of loans I have with Nationwide early. When I took them out I queried what the penalty would be if I was able to do so and was told "2 months interest" - well, the loans are for 24 months - so I worked out 2/24ths of the interest I have to pay on the full loan and they plan to charge a lot more than that.

What is the best way to repay them early and minimise the penalty for doing so?

CLAPTON

give the full details.. it may or may not be correct.

cafster

How far into the loan are you? You have to remember that interest is charged on the balance currently outstanding, therefore one month's interest in higher at the beginning of the term than it is at the end of the term. This means that you can't simply divide the total interest by the loan term to calculate the monthly interest due.

I've just settled a 3 year Nationwide loan early and they charged me 52 days interest penalty.

ceridwen

Hi

These are only small loans - £1,000 each for 24 months - payment £47.79 each per month. They are both due to finish 2008. It is costing me £1146.96 in monthly payments on each loan - ie £146.96 interest per loan in total (which to me means I am paying £6.12 interest each month in that £47.79 payment). So 2 months interest penalty would be £12.24 in my book per loan.

But banks/building societies have different ways of working things designed to catch us - the consumer - out - so on the one of the loans that I have a settlement letter on they want me to repay £46.48 more than I owe. On the other one I remember being told verbally it would be about £60/£70 more than I owe. On querying this they came back at me with 2 different charges that made this up, as I recall - interest and settlement charge.

Settlement charge!!! They never mentioned that when I took out the loans. I realised they would probably work out "interest" in a different way to the commonsense way you or I would - but plonking in a second charge as well they never mentioned!

CLAPTON

They work out the interest in a commonsense way i.e they take the oustanding capital and multiply it by the monthly interest rate.... so the amount of interest paid per month is obviously higher at the beginning of the loan when you owe the most and then drops each month (exactly like a mortgage and how interest is worked out on savings too).

By looking at the average per month you are confusing yourself.

So when did you take the loan out and how many payments have you made and also say whether there was any payment free period.

cafster

These are only small loans - £1,000 each for 24 months - payment £47.79 each per month. They are both due to finish 2008. It is costing me £1146.96 in monthly payments on each loan - ie £146.96 interest per loan in total (which to me means I am paying £6.12 interest each month in that £47.79 payment). So 2 months interest penalty would be £12.24 in my book per loan.

Not really, because it depends on how many months into the loan you are. Here is a quick calculation based on your numbers, I've assumed your loan rate is 14.4% APR which gives the correct loan term for the size of repayment you've quoted. Does this interest rate sound correct?

Month Balance Interest Repayment
0 £1000
1 £963.48 £11.27 £47.79
2 £926.56 £10.86 £47.79
3 £889.21 £10.45 £47.79
4 £851.45 £10.02 £47.79 ...... etc ....

So, if for example you ask for a settlement figure in month four, they'll add on the next months interest plus the next 28 days worth as the early repayment penalty. I guess they'll do this by working out the daily interest rate and compounding it daily.

That said, settlement figures of £40-60 seem too high. Have they sent you written confirmation of the figures yet? According to the consumer credit act, the most they can charge is a 28 day interest penealty.

MORPH3US

Interesting as I have a nationwide loan (£5000 over 5 years) with 1 year left to run, and I am sure that Nationwide told me (when I took out the loan) that if I ever repaid early, I would be eligible for a rebate of the interest?!?!

Anyway just looked on their website and found this:

"Early repayment charge: 28 days interest for new loans of 12 months, 58 days interest for new loans of more than 12 months

Other fees: None"

How do I work out what 1 days interest is on my loan??!?!?

When on their site I also noticed that they say:

"Can you make overpayments on your personal loan at any time?

Yes - up to £100 over and above your contractual monthly payments"

So OP, you may just be able to whack on £100 extra to your monthly payments and pay it off a lot quicker but not instantly (I assume the overpayments they mention are without penalty)

M

ceridwen

Thanks to all for replies to date.

- the loans were taken out respectively in March 2006 and May 2006 and with no payment-free period as I recall.
- interest rate 14.4%

I guess what I am wondering about is whether I can do some overpayment and then not be charged penalty on that bit I have just lobbed in. Looks like I need to ask them for a breakdown of their figures in settlement letters I have to ask for - not given by them in the one I have so far from them on one of the loans.

cafster

How do I work out what 1 days interest is on my loan??!?!?

If you really want to know:

daily = [(APR + 1)^(1/365)] - 1

where APR is the annual percentage rate expressed as a decimal (for example, 14.4% is 0.144). Therefore the daily interest on the 14.4% loan is 0.0369%.

So, at the beginning of the term with £1000 outstanding, 28 days interest would be:

interest = 1000 * [((1+0.000369)^28)-1] = £10.37

You can do these calculations easily in a spreadsheet, such as Excel, using the financial functions.

When I calculated the early settlement penalty for my Nationwide loan using the above formulae I got the same answer as them to within one penny.

conkenneth

hi cafster ,you seem an expert with formulae,could you work out my loan settlement aa loan £14000 over 84 mths at 5.8% 28 mths in £204 a mth there quoting me £10,100 about £1800 in intrest cheers ken

BenL

This calculator will give you a pretty good idea. Your figures aren't that far off but I think the bank will also take into account the start date and your payment date.

Loans are calculated using "rule of 78", there is an explanation in MSE somewhere but the interest is loaded to be paid mostly at the start of the loan and overtime the % of capital repaid starts to increase.

http://www.hughchou.org/calc/rule78.cgi

Ben