Overpayment - worse or better off?

Unicorn_cottage

Hi there

I took out a Natwest loan for £10,850.00 (APR 3.9%) with interest of £1,090.00 this took the total payable to £11,940.00. The payback agreement is for 60 payments starting in August 2016 each of £199.00.

The amount owed now stands at £6,407.81.

I would like to chip away at this loan in order to get it paid off quicker but I can't work out from the T&C's whether it would mean I am any better or worse of for paying it off earlier. The T&C's state:

"Compensation payable in the case of early repayment

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 (28 days' interest only if period of the Loan
is one year or less), 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."

Many thanks

[Deleted User]

Overpayments will save you interest.

The only exception would be settling the loan within 58 days of the end of the term.

Unicorn_cottage

How much interest would I save if I paid of an extra £100 a month? Wish I was good at maths!!

ndf9876

Google search for "loan amortisation calculator" and have a play with the numbers there. Some of the sites may be American, but all that means is the numbers have dollar signs instead of pounds

Craig1981

I do this with my Tesco loan - once overpayment made, contact them and tell them it is for reduction in interest, and your regular payments to remain as normal.


I have the loan on the Tesco banking app - within a few days of the overpayment, it will show interest adj - that is the amount saved. either that, or google "overpayment loan calculator". that is a good tool to use as well...

DrEskimo

If the original loan was £10,850, and you currently owe about £6,407, then I assume you have about 34months remaining? That means if you settle you finance today, you will have paid around £750 in interest, rather than the full £1,100.

To overpay the remaining 34 months by £100 would mean settling the loan around 10months earlier, and saving around £115 in interest (i.e. paying an additional £235 making the total interest paid about £985, rather than the remaining £350 in interest making it up to the full ~£1,100).

I think anyway...!

Unicorn_cottage

Hi DrEskimo - even with the early repayment fee?

DrEskimo

Unicorn_cottage wrote: »

Hi DrEskimo - even with the early repayment fee?

No I didn't account for any fees.

But if I've read the terms correctly, they will charge you 58 days interest on the amount by which the loan is overpaid, so I take it that means £100 if you overpay £100 each month?

In which case, 58 days interest at 3.9% APR on £100 is about 62p...? So the fees would amount to about £15 if you overpaid £100 each month for 24months (the new shortened loan duration with the overpayments), so still stand to save about £100...

I could be completely wrong about all the above though....:o
Please anyone correct me if I'm giving incorrect information!

Unicorn_cottage

DrEskimo - they should teach this stuff in school! As you say it is still a saving so definitely worth doing