Pay off loan?

The_Real_Cheddar_Bob

Its six of one half dozen of the other. 
By paying off the loan, you leave yourself exposed to cash requirements and having no cash, then relying on banks, loans etc and possibly not getting them. 

By not paying it off, you still pay interest, but, you have been able to save £6k and pay the £220, so in theory, you can save a combined higher figure if the loan was paying, building you savings again quicker. 

Jami74

The_Real_Cheddar_Bob said:

By paying off the loan, you leave yourself exposed to cash requirements and having no cash, then relying on banks, loans etc and possibly not getting them. 

OP could compromise. Keep £1k in savings for 'just in case' and pay off £5k. The loan will still be cleared within the year and OP will still have saved a little bit of interest.

MalMonroe

col81 said:

A family member got a loan for me a couple of years ago I owe £6k on it and it a low rate. I have £6k savings should I clear it and be £220 a month better off and start saving again? Difficult 

So who are you repaying to? The family member? If this were me and I had the funds to clear the loan, I'd do it. Then you won't be beholden to anybody and you won't be paying interest either, no matter how low the interest rate may be. 

I understand that it's tempting to hang on to such a large sum of money but to me, it's not difficult at all, it's a no brainer. Yes, start saving again. Lots of people have no savings with no prospect of ever saving either, so you're going to be better off than them. Get rid of that debt, because now you can.

Nearlyold

Batesy1976 said:

peteuk said:

Might be worth checking what they will refund in interest and then may be offering a full and final (depending on who the loan is with)   This might lead to you being able to put some of the £6K in a new account as an emergency and paying the loan off at the same time. 

GOOD LUCK! 

Why would a creditor accept a full and final settlement on a loan that's being paid off, presumably according to the agreement?  Or refund some of the interest for that matter?

Think it's just maybe a little confusion over nomenclature.

By "Full and Final Settlement" Peteuk perhaps just means paying off the amount owing ie. an Early Settlement, not any sort of reduced settlement as might be accepted on a loan in default.

Secondly what Peteuk means by the "current balance" on his loan is the Total Amount yet to pay on the loan, many lenders still show loans in that way on their statements , which is why the settlement figure is less than the "current balance".

Batesy1976

Nearlyold said:

Batesy1976 said:

peteuk said:

Might be worth checking what they will refund in interest and then may be offering a full and final (depending on who the loan is with)   This might lead to you being able to put some of the £6K in a new account as an emergency and paying the loan off at the same time. 

GOOD LUCK! 

Why would a creditor accept a full and final settlement on a loan that's being paid off, presumably according to the agreement?  Or refund some of the interest for that matter?

Think it's just maybe a little confusion over nomenclature.

By "Full and Final Settlement" Peteuk perhaps just means paying off the amount owing ie. an Early Settlement, not any sort of reduced settlement as might be accepted on a loan in default.

Secondly what Peteuk means by the "current balance" on his loan is the Total Amount yet to pay on the loan, many lenders still show loans in that way on their statements , which is why the settlement figure is less than the "current balance".

No, he means what people mean by saying "full and final settlement" which is a reduced amount, usually offered over defaulted debt.  It makes no sense otherwise, as the whole point of the thread is the OP asking whether they should settle the debt.

peteuk

Batesy1976 said:

peteuk said:

Might be worth checking what they will refund in interest and then may be offering a full and final (depending on who the loan is with)   This might lead to you being able to put some of the £6K in a new account as an emergency and paying the loan off at the same time. 

GOOD LUCK! 

Why would a creditor accept a full and final settlement on a loan that's being paid off, presumably according to the agreement?  Or refund some of the interest for that matter?

So they will give you a settlement figure this will be what the balance of the loan is now, minus a rebate of the interest you wont pay from now until the end of the load.

Simply put: Borrow £1000 over 3 years with 10% interest per year.  Total paid £1000+ 3X10%= £1000+£300  so total paid is £1300.

If you get to the end of year two and pay it off, you will only pay £1200 so they will reduce the balance by £100.

If your struggling then they will cut there losses and settle for a lower figure, rather than drag it out and go through the process of reclaiming it.  

peteuk

Batesy1976 said:

peteuk said:

Might be worth checking what they will refund in interest and then may be offering a full and final (depending on who the loan is with)   This might lead to you being able to put some of the £6K in a new account as an emergency and paying the loan off at the same time. 

GOOD LUCK! 

Why would a creditor accept a full and final settlement on a loan that's being paid off, presumably according to the agreement?  Or refund some of the interest for that matter?

Settlement Figure - is the amount you owe with a rebate of the interest that you wont pay between the date you pay it and the end of the loan. 

Partial or full and final settlement - is an agreed amount you offer to them to settle the debt in full.  It is marked on the credit file as nil balance but is marked as a partial settlement.   If it saves you £500 of the balance then great, anything more is a bonus. 

Nebulous2

peteuk said:

Batesy1976 said:

peteuk said:

Might be worth checking what they will refund in interest and then may be offering a full and final (depending on who the loan is with)   This might lead to you being able to put some of the £6K in a new account as an emergency and paying the loan off at the same time. 

GOOD LUCK! 

Why would a creditor accept a full and final settlement on a loan that's being paid off, presumably according to the agreement?  Or refund some of the interest for that matter?

So they will give you a settlement figure this will be what the balance of the loan is now, minus a rebate of the interest you wont pay from now until the end of the load.

Simply put: Borrow £1000 over 3 years with 10% interest per year.  Total paid £1000+ 3X10%= £1000+£300  so total paid is £1300.

If you get to the end of year two and pay it off, you will only pay £1200 so they will reduce the balance by £100.

If your struggling then they will cut there losses and settle for a lower figure, rather than drag it out and go through the process of reclaiming it.  

That isn't how interest works.

Plenty of loan calculators available on the internet. Find one and have a play about with the figures for a £1000 loan to see what it costs over 3 years and how much interest is left after 2 years.

Herzlos

Jami74 said:

The_Real_Cheddar_Bob said:

By paying off the loan, you leave yourself exposed to cash requirements and having no cash, then relying on banks, loans etc and possibly not getting them. 

OP could compromise. Keep £1k in savings for 'just in case' and pay off £5k. The loan will still be cleared within the year and OP will still have saved a little bit of interest.

Bingo, and if you keep the payments the same but reduce the term (usually an option) you'll have the remaining £1k cleared in 5 months.

Personally, the loan rate is almost certainly much higher than the interest rate, so I'd clear it entirely and then rebuild the savings from the saved payments. In the worst case you need a lot of money before it's build up so you borrow again and you're not any worse off than you started.

PRAISETHESUN

https://www.moneysavingexpert.com/savings/pay-off-debts/

It makes the most financial sense to pay off the debt and then rebuild your emergency fund with the extra money you aren't throwing away in interest payments. If you suddenly find yourself in need of cash, you get another loan and you are back where you started. If you don't end up needing extra cash then you're much better off