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Loan Early Settlement - Interest Refund?

edited 12 May 2019 at 9:26AM in Loans
17 replies 2.1K views
DaveyMamesDaveyMames Forumite
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edited 12 May 2019 at 9:26AM in Loans
I heard that you get an interest refund for paying back a loan in full early. Can anyone explain what this is all about or how you work out how much you get paid back?

Here's an example Tesco Unsecured loan (you CAN do an early settlement at any time but you'll be charged 2 months interest):

Unsecured Loan Amount: £35,000
Length of Loan: 120 months
Monthly Payment: £533.56
Interest Rate: 13.52% per annum (nominal)
APR: 14.4%
Total amount of interest Due: £29,027
Total to Pay Back over 120 months: £64,027

Let's say I want to pay back the whole loan after 18 months where I've already paid back £9,604 over that time. Do I simply deduct that value from the amount I was loaned (£35,0000)? If so that would be £25,396 I would have to pay back.

I used a calculator here: financecalcs.co.uk/Calcs/Settlement.php
It said I would owe £32,952.12 if I wanted to pay off the loan early. Is that correct and would I get any of the interest I already paid refunded? I asked the loan provider and they said they couldn't tell me in advance how much I would have to pay back for an early settlement as it would be worked out at the time which isn't very helpful to me.
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  • BrowntoaBrowntoa Forumite, Board Guide
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    Depends on your loan agreement , it may not allow early settlement , or have a minimum redemption
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  • DaveyMamesDaveyMames Forumite
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    It's with Tesco. They said you can indeed do an early settlement at any time but you'll be charged 2 months interest. Just wondering if I'd get any of the interest back that I paid?
  • BoGoFBoGoF Forumite
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    You don't get a rebate of interest already paid.....it's not a 'rebate' as such it is a reduction in the interest going forward to recognise the fact you have paid early. Request a settlement figure.
  • DaveyMamesDaveyMames Forumite
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    Makes sense. Any estimate as to how much I would have to pay back to settle the loan?

    I haven't taken the loan out yet. I was just curious about how much I would have to pay back if I settled the loan early.
  • BrowntoaBrowntoa Forumite, Board Guide
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    The balance plus 2 months interest , as the terms say
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  • DaveyMamesDaveyMames Forumite
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    So if I've already paid back £9,604. Do I simply deduct that value from the amount I was loaned (£35,0000)? So would I have to pay back £25,396 + 2 months interest?
  • AnotherJoeAnotherJoe Forumite
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    DaveyMames wrote: »
    So if I've already paid back £9,604. Do I simply deduct that value from the amount I was loaned (£35,0000)? So would I have to pay back £25,396 + 2 months interest?


    Yes. Assuming by "paid back £9,604" you mean that's what you've calculated you've paid off after seeing your balance is £25,396.
    If you mean you've paid £9,604, then some of that will be interest and so you'll actually owe more than £25,396
  • BoGoFBoGoF Forumite
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    If you have the loan on online banking it should show your balance.
  • Jami74Jami74 Forumite
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    DaveyMames wrote: »
    I heard that you get an interest refund for paying back a loan in full early. Can anyone explain what this is all about or how you work out how much you get paid back?

    Here's an example Tesco Unsecured loan (you CAN do an early settlement at any time but you'll be charged 2 months interest):

    Unsecured Loan Amount: £35,000
    Length of Loan: 120 months
    Monthly Payment: £533.56
    Interest Rate: 13.52% per annum (nominal)
    APR: 14.4%
    Total amount of interest Due: £29,027
    Total to Pay Back over 120 months: £64,027

    Let's say I want to pay back the whole loan after 18 months where I've already paid back £9,604 over that time. Do I simply deduct that value from the amount I was loaned (£35,0000)? If so that would be £25,396 I would have to pay back.

    I used a calculator here: financecalcs.co.uk/Calcs/Settlement.php
    It said I would owe £32,952.12 if I wanted to pay off the loan early. Is that correct and would I get any of the interest I already paid refunded? I asked the loan provider and they said they couldn't tell me in advance how much I would have to pay back for an early settlement as it would be worked out at the time which isn't very helpful to me.

    If you pay it off over the 120 months as per your loan agreement then the total amount of interest you pay is about £29,000 (your figures).

    If after 18 months you make a final payment, which would be about £33,000 (your figures) plus 2 months interest on that amount which would be probably be just under £1000, then overall the amount of interest you'll have paid on the loan would be about £8,000.

    This is an interest saving of about £21,000. You can't claim that interest back as a refund because you haven't paid it yet, but it is a sort of refund because you had signed an agreement to pay £29,000 in interest and if you'll only pay about £8,000.

    I guess if on day 1 of the loan you had paid the £29,000 interest up front and was now only paying off the actual loan, then they'd have to give you the interest you'd already paid back.

    Get the repayment figure. Even if you can't pay the full amount off pay off as much as you can as soon as you can because interest is calculated per day on the full balance, so even if you ended up still owing a little bit the savings would be astronomical.
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  • foxy-stoatfoxy-stoat Forumite
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    DaveyMames wrote: »
    So if I've already paid back £9,604. Do I simply deduct that value from the amount I was loaned (£35,0000)? So would I have to pay back £25,396 + 2 months interest?

    If you mean you have made £9,604 in the monthly payments then no....

    The approximate interest for the first few months is £420 per month so the £533 a month you will pay only pays off £113 of the sum borrowed.

    If you haven't taken the loan out yet then don't, what are you going to spend the money on?....the interest is a killer.
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