High Interest RateSetter Loan - No Discount For ER

RaulSim

I have a RateSetter loan I took out just over a year ago due to having limited options at the time.

It has a high interest rate (IMHO) at 14.9% which will take 4 years to pay.

It is affordable, I pay every month, never missed a payment and don't imagine I will. Currently, not struggling with any debt. Nonetheless, I often reassess my finances, and try to repay loans early to benefit from the lesser interest and to reduce amount of borrowing to maintain a good credit file.

However, I have realised, RateSetter does not offer ANY discount for paying the loan early, you still pay full amount and interest. This is because of a smart way they calculate the interest and spread it over your monthly payments. Spoke to RateSetter and they confirmed there is no discount from paying early.

So I want to ask what are my options (if any) to pay earlier and benefit from a lower cost?

Has anybody been in a similar position?

Any advice is appreciated.

Thanks.

nick74

That's not correct, Ratesetter do not have any penalty for repaying a loan early. It's down to the way some lenders show the interest. Some add the whole lot to the capital balance, then if you repay early they 'refund' the future interest. Some, (such as Ratesetter presumably) add it on to your account on a monthly basis when you make a payment. There is no 'discount' because they've not added any future interest on to your account anyway.

RaulSim

I didn't say there was a penalty with RateSetter for paying early. I said is there any method that can be employed to to reduce the amount of interest paid if paying earlier.

Thanks

Gaz83

RaulSim wrote: »

I didn't say there was a penalty with RateSetter for paying early. I said is there any method that can be employed to to reduce the amount of interest paid if paying earlier.

Thanks

You're referring to front-loading interest, which doesn't happen.

You won't get a refund on future interest payments, as you haven't paid them yet.

nick74

I think you misunderstand, 'penalty' in this context means when a lender charges interest for a period after a loan has been repaid. Ratesetter do not do this.

Ratesetter only add interest to your account for any capital outstanding on the day. Therefore if you repay early you will get the benefit of paying less interest. They don't 'discount' the interest because they don't ever add any future interest to the account balance.

Clive_Woody

RaulSim wrote: »

I didn't say there was a penalty with RateSetter for paying early. I said is there any method that can be employed to to reduce the amount of interest paid if paying earlier.

Thanks

The interest you have paid is for the balance owed on an ongoing basis, by repaying the balance early you will effectively save on interest as you will no longer be charged interest as you will have no further debt. They will not refund interest paid to date.

RaulSim

I know there is no refund, but everyone is suggesting paying early will mean you pay less.

This is not the case, I have 3 years left on my agreement. When I ask for a settlement fee, its the same fee I would of paid had I continued paying my monthly amount every month for the next three years. So no benefit.

Am I making sense?

Normally with loans, you pay a reduced amount when paying early because you don't pay future interest.

But it doesn't seem this is the case for RS.

BoGoF

Ok, give us some figures.

Amount borrowed, total amount repayable and monthly repayments? How much have you repaid?

What is the settlement figure they gave you? You did make it clear it was a settlement figure you wanted and not your balance?

Ben8282

RaulSim wrote: »

I
This is not the case, I have 3 years left on my agreement. When I ask for a settlement fee, its the same fee I would of paid had I continued paying my monthly amount every month for the next three years. So no benefit.

Am I making sense?

Normally with loans, you pay a reduced amount when paying early because you don't pay future interest.

But it doesn't seem this is the case for RS.

You would be making sense if you didn't keep using the word 'fee'.
If you are referring to the amount of your monthly repayment, which is not a fee, and are saying (using example figures) that you owe £3600 and have 36 repayments each of £100 still to go and that you are being asked to pay £3600 upfront now to settle the loan, this cannot be correct, it really can't.