Loan query

dottydebts

Hi all,

I have recently finished paying off the majority of my debt, and have a question about the final part. I took out a loan with my bank earlier this year to pay for a car. This currently stands at a little over 7000. I would ideally like to overpay this to clear it faster, but I am concerned about the extra charges. From what I have read, this is 58 days interest.

Will I pay this charge every time I overpay? (In which case I would save the extra money and clear it when I have enough saved to do so in full) or have I missed something completely?

tlc678910

Hi,
From what I can find this charge is usually for repaying the loan in full:

From Love Money
"Charges for settling loans early

Most personal loans, including Sainsbury’s latest offering, are subject to a settlement fee if you want to repay the loan early.

Under the Consumer Credit (Early Settlement) Regulations 2004 lenders can charge up to 58 days' interest on the amount remaining if you wish to pay off the loan in full before the end of your agreed term.

This means some borrowers could end up paying charges that outweigh the money they would have saved in interest by paying off the loan early, particularly if they are repaying a large sum.

In addition, if you make an overpayment totalling more than £8,000 in any given 12-month period, providers can also charge up to 1% of the amount you have overpaid."

https://www.lovemoney.com/news/26871/flexible-personal-loans-is-it-worth-paying-extra

However if you say who is the lender someone might be able to clarify their terms.

Tlc

dottydebts

Thank-you - it is a NatWest loan and after reading more into it today safe to say I’m more confused than I was this morning!

Westie983

Hi,

I have moved this to the loans board where you should get more help with your question

Westie983

Bermonia

Speak with NatWest to clarify but my understanding is that the interest penalty is only on early settlement (the loan being paid off in its entirety early) - usually when you overpay loans they will either reduce the term or reduce the monthly repayments as such you would have to speak with NatWest to ensure they carry out your wishes.

Alternatively you could always put the money aside in a savings account and pay it off in full once you have enough saved up - also nice to have some readily available funds should an emergency arise.

Clive_Woody

My understanding is that the early repayment charge is applicable when you clear the debt (i.e. the final payment).

If you owe £7000, there is nothing to stop you overpaying £6900 and then make a final payment of £100. The early repayment charge would apply to the £100 payment

foxy-stoat

Clive_Woody wrote: »

My understanding is that the early repayment charge is applicable when you clear the debt (i.e. the final payment).

If you owe £7000, there is nothing to stop you overpaying £6900 and then make a final payment of £100. The early repayment charge would apply to the £100 payment

Not on my Natwest Loan. They charge you upto 58 days worth of interest on the amount you overpay, be it £100 or £6000.

You will save money in the long run if you over pay.

Clive_Woody

foxy-stoat wrote: »

Not on my Natwest Loan. They charge you upto 58 days worth of interest on the amount you overpay, be it £100 or £6000.

You will save money in the long run if you over pay.

Wow, on my Nationwide loan there are no early repayment fees and an APR of only 2.4%.

I haven't banked with Natwest for a long time and won't be any time soon if they charge a fee on all overpayments.

foxy-stoat

I have only made 1 over payment on my loan, but its not a reason for me to change banks over a few pounds.

Nearlyold

Many lenders introduced the up to 58 day interest charge on any partial overpayment as well as full (the latter already attracting the charge) following the introduction of the European Consumer Credit Directive which introduced as a "Right" the ability to make partial overpayments (though many lenders already allowed it anyway).

The loan terms and conditions will clarify under what circumstances the lender will charge, some loans have no partial or full settlment charges, some have charges on both and some have charges only on full settlement.

Actually in some respects it isn't a "charge" as such, what actually happens is, when calculating any rebate of interest due in arriving at the settlement figure, the legislation allows the lender to calculate the rebate of interest by assuming a settlement date up to 58 days after the date of the customer's request for a settlement figure (or the date of the extra payment if no settlement figure was requested). Settlement quotes give the customer up to 58 days to make the payment but the lender does not have to recalculate the rebate of interest if the customer makes the payment earlier - as most customers do of course.

dottydebts

Thanks all for your replies - I think what I will do is save a chunk and overpay a larger amount - was hoping to just pay an extra £100 a month or so but I don’t think this would make sense now. I will probably save until I have about £1500 and then reduce the loan term.