Loan: Pay off in full loophole? (no pay early settlement fee)

HamishScot

Hi. Had a good search but couldn't find an answer to this. Maybe someone can help.

I am trying to pay of a loan and it seems (unless I'm missing something) I can avoid the early settlement fees/interest) by making a large additional payment and leaving one month payment as a balance. Then the term reduces to one month and the next month's payment pays off the loan.

If I am not mistaken, I am saving the 2 months extra interest charge they are taking in the early settlement route. I would pay £13,575.56 and not £13745.38. Saving £169.82.

Is this correct, or will they hit me with some additional charges? Any help on this is much appreciated.

Details:

I took out a personal Loan for 84months with Bank of Scotland for £17000.

I have 64 months remaining. I wanted to pay off the loan in full.


My current balance is £13575.56


I got the quote from them to pay it off today (early settlement):

Amount payable: £16119.44

Interest saved £ 2374.06

Total amount due to settle loan: £13745.38


But when I went on the "make additional payment" page it worked out cheaper?

it said:

if I made an additional payment of £13322.33 today

my term would change to 1 month (reduced by 63)

and my new balance would be £253.23 (my normal monthly payment).


relevant sections t&c of loan:

8) Can you make extra loan payments?

You can make extra payments to your loan at any time. Any extra payments made on a non-working day, will be used to pay off what you owe us on the next working day. Extra payments:

• will not change or replace your fixed monthly repayments and you will still need to pay these on time every month;

• may change the number of repayments you have left and the amount of your final repayment;

• will be used to pay off any fees or charges that we have charged you before reducing the other amounts you owe us; and

• can be made through Internet Banking (if you are registered and have a bank account with us), at a branch or by debit card if you call the number in the contact details box below.


9) Can you repay your loan early?

You can pay off your loan in full at any time by giving us notice. You can do this through Internet Banking (if you are registered and have a bank account with us), at a branch or you can call us or write to us. Our telephone number and address are in the contact details box below.

• You must pay the full amount you owe us, plus the interest you agreed to pay us for the remaining term of the loan. This means you must pay us the total amount of your remaining repayments under the agreement, less a rebate that we will apply.  

• This rebate is calculated in accordance with the Consumer Credit (Early Settlement) Regulations 2004.

• Because of the rebate we will only charge you up to 58 days’ worth of interest on the outstanding balance because we will calculate the settlement amount using a settlement date that is 58 days after the date of the settlement notice.

• We will tell you how much you will need to pay to settle your loan early. We will provide you with an early settlement quote that will be valid for 30 days.

[Deleted User]

Yes, you can do that, as they're not charging 58 days on pre-settlement overpayments.