Early settlement penalty 14 January 2020 at 10:27AM edited 30 November -1 at 12:00AM in Loans 5 replies 605 views

MPEARSON

Hello all,
Wondered if anyone can advise please.
I have a loan with an outstanding balance of £15k
I would like to settle this loan early. The loan agreement says that a penalty of 28 days interest will apply with an early settlement.
However another term of the agreement says that I will not be charged for overpayments.
So can I just make an overpayment of £14,900, with no penalty. Then wait a few days and pay settle the last £100 with the penalty being 28 days interest on the remaining £100?
Hope that makes sense!

foxy-stoat

Maybe make an overpayment of the balance less the next monthly payment.

BoGoF

It also depends what you means by 'outstanding balance' is that purely capital or does it include interest?

lindens

would make a payment of the current balance minus (a monthly payment +£10)
once that payment has cleared ask for a settlement figure and pay it off

jonesMUFCforever

At the moment we are all guessing!
The loan agreement will tell the OP what penalties are for early repayment AND how he can make overpayments and what happens as a result of the overpayment.

Ben8282

The idea of making a large overpayment and then subsequently making a request to settle the loan is a known method of reducing the early settlement penalty of x months interest charge and, although I have not done it, I believe that it works.

lindens wrote: »

would make a payment of the current balance minus (a monthly payment +£10)
once that payment has cleared ask for a settlement figure and pay it off

I think this will be ok although perhaps I would make a slightly lower payment and wait a little bit longer so as not to be too obvious.
Perhaps before this months payment is due, make a payment of the balance less 2 months payments, allow this month's payment to go through then see what happens. I am assuming here that the balance you are seeing is the actual balance, not some sort of inflated balance including interest, and you are seeing the interest added and the payment deducted on a monthly basis.