Making an overpayment on a loan - is it worth it?

CharlieBP

Hello,
I currently have a loan with Black Horse Finance for a motorhome at a 9% interest rate, and I am making the required monthly payments.
I have been saving a small amount monthly into a fixed saver, which has just matured, and now I only get 0.1% interest on the savings.
Is it worth me using this matured savings to make a lump sum payment towards the Black Horse loan (in addition to continuing my regular monthly payments)? My intention would be to pay off the loan more quickly. Will this reduce the overall amount I am paying in interest, or will they still charge the same amount of interest overall anyway? There is no penalty for making an overpayment, Im just not sure if it is worth me making this overpayment?
If there is some benefit in terms of reduced interest on the loan, then my intention will be to make an additional payment every year when my annual fixed saver matures, and also an additional payment when i receive my annual bonus from work.
Any advice is much appreciated!

foxy-stoat

Yes, you will save the 9% on the amount you overpay by reducing the term - you wont get that anywhere in a regular savings account, or a good one.

Get it done.

phillw

CharlieBP wrote: »

I currently have a loan with Black Horse Finance for a motorhome at a 9% interest rate, and I am making the required monthly payments.
I have been saving a small amount monthly into a fixed saver, which has just matured, and now I only get 0.1% interest on the savings.

Make sure there isn't a penalty for repaying early & factor that in.

If there is none then dump every penny you have in that is earning less than 9% (which I would imagine is everything).

If for example you have savings at 3% then you are in effect borrowing the money in that account at 6% just in case you might need it.

Make sure you retain a small buffer to avoid overdraft or credit card fees, which will be higher than 9%

CharlieBP

Thank you both for your advice.
I spoke to them and they confirmed there are no penalties for making an overpayment. So I made a additional payment of £1500, and as a result I have reduced the interest by £1400!!
I have kept some of the savings back in case I need it, but will be saving again now to make further overpayments whenever I can (they confirmed I can make as many additional payments as I want)!

SuperAllyB

Unless your regular saver is paying more than 9%, you'd be better off overpaying your loan each month rather than letting a monthly saving build up.

foxy-stoat

CharlieBP wrote: »

Thank you both for your advice.
I spoke to them and they confirmed there are no penalties for making an overpayment. So I made a additional payment of £1500, and as a result I have reduced the interest by £1400!!
I have kept some of the savings back in case I need it, but will be saving again now to make further overpayments whenever I can (they confirmed I can make as many additional payments as I want)!

Crikey, how long was the loan term, 9% on £1500 is only £135 a year.

CharlieBP

foxy-stoat wrote: »

Crikey, how long was the loan term, 9% on £1500 is only £135 a year.

The loan was for 9 years originally, and I had already paid 9 months payments. But with the overpayment I have now made I have reduced it by 8 months.

chanz4

get a Tesco loan 9% is way high