Overpaying RBS loan

al85

Hi, hoping someone can offer some advice. I have a personal loan with RBS with three years left on it, but I want to increase the payments and pay it off in just over a year.


I phoned RBS who said I can't increase my monthly payments, I'd have to take out a new loan with a new credit check etc, which I don't really want to do. They then said that if I make overpayments I'll incur up to 58 days additional interest. I'm not great with money (hence why I'm in this position in the first place!) and don't really understand what that means - can anyone explain in simple terms?


I'm also wondering the best way to go about making overpayments. Can I transfer money into the loan account every month, or would I be better saving it in a separate account until I have enough to clear the loan, and making one payment?


Thanks in advance!

National_Debtline

Hi al85 and welcome to MSE,


You need to check the terms and conditions of the loan as it sound as though you will get a penalty if you overpay. Not all loans allow you to overpay free of charge so it is not cost effective to overpay in all cases.


So, if you want to pay your loan in 12 months instead of 36 months it can affect how much money the bank makes on that transaction (in other words, it can reduce the amount of interest they can charge you). This is not ideal for the bank. So, they try to off set this idea with a payment penalty (a punishment) for you repaying your loan earlier than agreed (in your case, that is an extra 58days worth of interest).


To work out if this is cost effective for you, you need to calculate how much money does 58 days of interest equate to? How much interest is left on the loan over 36 months? And is the penalty (of 58days of interest) applied per overpayment (irrespective of how much you pay) or is the penalty amount linked to the overpayment amount? I hope that helps, please post more figures if you are unsure,


Laura
@natdebtline

al85

Hi Laura, thanks so much for replying. The T&Cs state:


"If you choose to repay the loan early, either in full or in part then an early repayment fee will be payable. The fee will be an amount equal to 58 days' interest at the Annual rate of interest, calculated on a daily basis on (a) the amount by which the outstanding balance of the Loan is reduced by the overpayment, or (b) where the loan is repaid early, on the amount of the outstanding balance of the Loan which is repaid ahead of the due date"


My current monthly repayment is £196, I want to pay an extra £200 per month just now and will increase that to an extra £300 later in the year after I've been on holiday. The APR is 18.9%.

Money_Rollercoaster

I would do the following (in this order):


A. Get a settlement balance from RBS - this will be the total you would have to pay if you settled the loan in full - it's normally valid for about a month and likely won't take into account very recent payments made


B. Advise RBS that you will be making regular overpayments against the loan of £200 pcm


C: Get the payment details from RBS for making those payments - Name / Sort Code / Account No / Reference


Try an eligibility check for a loan for the amount given by RBS in A. Keep the term to a manageable term ... it looks like you can afford £400 pcm, but do you want to give yourself some leeway? http://www.moneysavingexpert.com/loans/cheap-personal-loans


E: If there is a good chance you'll get accepted at a better rate, apply for the loan where you think you have the best chance. There are of course no guarantees regarding rates or acceptance chances. If accepted and at a good rate, settle the RBS loan as soon as possible.


F: If you aren't accepted for the loan you apply for (or you are accepted at a higher rate than you're on), go balls out to overpay the RBS loan. Don't worry about the 58 day thing ... at 18.9% APR, overpaying is clearly in your best interest.


If you're about to apply for a mortgage, or you have some other reason to keep your credit file clear of searches / new applications, then I would skip E, but otherwise complete all other steps.

ffacoffipawb

Money_Rollercoaster wrote: »

I would do the following (in this order):


A. Get a settlement balance from TSB - this will be the total you would have to pay if you settled the loan in full - it's normally valid for about a month and likely won't take into account very recent payments made


B. Advise TSB that you will be making regular overpayments against the loan of £200 pcm


C: Get the payment details from TSB for making those payments - Name / Sort Code / Account No / Reference


Try an eligibility check for a loan for the amount given by TSB in A. Keep the term to a manageable term ... it looks like you can afford £400 pcm, but do you want to give yourself some leeway? http://www.moneysavingexpert.com/loans/cheap-personal-loans


E: If there is a good chance you'll get accepted at a better rate, apply for the loan where you think you have the best chance. There are of course no guarantees regarding rates or acceptance chances. If accepted and at a good rate, settle the TSB loan as soon as possible.


F: If you aren't accepted for the loan you apply for (or you are accepted at a higher rate than you're on), go balls out to overpay the TSB loan. Don't worry about the 58 day thing ... at 18.9% APR, overpaying is clearly in your best interest.


If you're about to apply for a mortgage, or you have some other reason to keep your credit file clear of searches / new applications, then I would skip E, but otherwise complete all other steps.

I would do most of that, but with RBS - as the loan is with them, not TSB.

redpete

al85 wrote: »

I phoned RBS who said I can't increase my monthly payments, I'd have to take out a new loan with a new credit check etc, which I don't really want to do. They then said that if I make overpayments I'll incur up to 58 days additional interest. I'm not great with money (hence why I'm in this position in the first place!) and don't really understand what that means - can anyone explain in simple terms?

If you pay off an extra £200 now youll save around 3 years' worth of interest, or around 1000 days' worth. The 58 days penalty means that you'll actually save 'only' 942 days of interest. You will better off until you are down to a couple of months worth of payments left. At 18.9% it is well worth paying early.

al85

Thanks very much for the replies, much appreciated! I'm not convinced I'd be accepted on a better rate, so I think I'll just overpay as much as I can every month. I have the loan account details so can I just transfer the money, or do I have to let RBS/TSB ( ) know that's what I'm planning to do?

Nearlyold

You need to tell them otherwise they might just treat them as advance payments on account

20aday

I used to have a NatWest loan a couple of years ago and transferred a set amount each month using Faster Payments.

No longer have the paperwork but periodically I'd get letters from them telling me when my loan would 'settle' compared to the original date of fulfilment.

bolder

My tsb loan is on my online banking i just hit the make an overpayment button and it lets me kno the effect it will have on it, payed 1000 last month reduced loan by 8months and i think 270 in intrest

al85

Nearlyold wrote: »

You need to tell them otherwise they might just treat them as advance payments on account

Sorry Nearlyold, what does that mean? What's an advanced payment?