Pay back loan early or not

Graham1982

Hello everyone:

Sorry if these questions defy the rules of normal finance and common sense, I just want to double check:

In 2019 I took out a consolodation loan with Barclays. I have no fixed assets and therefore the inteest rate was high but lower than the credit card debt that it paid off. I have successfully not got into more debt and I have been paying this loan to term since Dec 2019 when I took it out.

My parents opened some post intended for me, as my dad has the same name and it has gone to their house as I am out of the UK. They didn't know that I had the loan and have offered to pay it off for me and that I pay them interest free.

Please note the following:

I did not/do not need them to pay this off for me, they are retired, I am nearly 40 years old, I understand the school of thought that you need to go through the struggle to not get into debt again, even though I am confident I won't do it again as my circumstances have changed dramatically. Effectively my bed, I must lay in it.

I work abroad and have savings amounting to 10k GBP that are not earning interest but that I am adding to. 

Is there any sense to paying the loan off early as surely, as with all loans, the product is sold so that the bank earn the interest irrespective of whether it is paid early or not, i.e. there is no benefit to paying it early and the only reason to do so would be if I wasn't servicing the debt and it was in arrears?
Equally, is there no sense to not paying it off early?

Thanks

Graham

sourcrates

Usually you would save some interest if the loan were repaid early, also you need to check if there are any early repayment penalties first, some banks charge, others don`t, but normally you would save the interest you would have paid from the settlement date, to the full term date the loan would have ended.

You ask the bank to provide you with a settlement figure, they will do all the working out, and post it to you to be paid by a certain date.

TheAble

Often the early repayment charge is 2 months interest but it will say in the terms.

enthusiasticsaver

Yes providing there is no early repayment penalty and you actually save on interest by repaying it now use some of your savings. Often there is a two month penalty but the way I have done it sometimes is to make a lump sum repayment assuming no penalty to get the balance very low then repay it in full so the two month interest charge is as low as possible. 

Graham1982

Hello everyone:

I will try to give you the information I have and then hopefully you can tell me if I will need to contact the bank directly to get additional info:

The loan is with Barclays and the product is called Barclay Loan Unprotected (or Barclayloan) 

The repayment amount is circa 235 pcm.

I believe the loan was originally for 7.5 or 7K. It was opened in December 2019

The outstanding balance is 4,688.56 

The app says:

Pay off loan: You could settle your loan today for: 4,849.66

Accrued interest is 77.78

Early settlement fee is 83.32

Total settlement figure 4,849.66

There is another payment due of circa 235.00 in the next day or so.

I guess my questions are as follows, if I pay the loan off in full let's say immediately after next payment is due, do I save the interest that I would have accrued up until completion in 20 months time (circa) minus the 83 odd quid?

Thanks

Graham

TheAble

It's quite hard to say. What's the interest rate on the loan?

SusieT

Graham1982 said:

Hello everyone:

I will try to give you the information I have and then hopefully you can tell me if I will need to contact the bank directly to get additional info:

The loan is with Barclays and the product is called Barclay Loan Unprotected (or Barclayloan) 

The repayment amount is circa 235 pcm.

I believe the loan was originally for 7.5 or 7K. It was opened in December 2019

The outstanding balance is 4,688.56 

The app says:

Pay off loan: You could settle your loan today for: 4,849.66

Accrued interest is 77.78

Early settlement fee is 83.32

Total settlement figure 4,849.66

There is another payment due of circa 235.00 in the next day or so.

I guess my questions are as follows, if I pay the loan off in full let's say immediately after next payment is due, do I save the interest that I would have accrued up until completion in 20 months time (circa) minus the 83 odd quid?

Thanks

Graham

It looks from those numbers that the capital remaining (£4688.56) has interest added each month, rather than it being added to the capital and you getting a rebate if you pay it early? Big assumption from me, but if this month the interest would be £77.78 (possibly a couple of £ more by 30th) next month the interest would be a bit less.  From that, and IF the £77.78 is one month interest it means you would be paying around 18% on it? 
So IF the above is correct (especially the interest rate) and you were to repay it now you would pay the capital, the interest on it to date, and an early settlement which would be less than 2 months interest, doing that would save you over £850 of interest in the future and would be a no brainer to pay it off now. 

Graham1982

Hello everyone:

Yes, from memory the APR is something like 18%, maybe 18.5%. I will look to getting it paid off in full after Christmas.

Thank you.

Graham