Early settlement fee from M&S Bank

rayudu

I took out a personal loan of £12000 for 24months with interest rate of 2.8% on Jan5th 2022.

The loan is for home improvement, but my circumstances were changed and I want to pay back the loan.

The monthly payment is £514.52 and I have paid my first monthly installment on Feb5th, when I called customer care to get the final settlement fee, they quoted £11572. 

When I checked what the settlement figure is comprised of - they were unable to tell me because the 'system' generates it and they don't know.

The term and conditions about early payment is "If you repay part of the loan early, your monthly repayment will stay the same but you may repay the loan more quickly. If you repay the loan in full, the formula in the regulations we use to work out the reduced amount of interest we can charge, works as if we charged interest at the rate that applies to the loan from the date we gave you the loan to the date which is 28 days after you give us notice, plus an additional month if your loan is repayable over a period of more than 12 months. For example, if the loan is for 36 months and you give us notice on 1 September that you want to repay the loan on 14 September, the amount required to repay the loan will include interest up to 29 October."

For the full term of 24 months, the total amount will be £12348.52 ( £514.52 x 24), which comes around £14.52 interest per month, my understanding is if I am paying now I will be paying extra 2 months interest ( total interest of £29).

Loan amount - £12000
paid - £514.52
Interest charged for 4 months( Around 2 months of loan period + 2 months interest for early repayment) - 4x14.52 = £58

Outstanding balance - £12000 + £58 - £514.52 = £11543 rather than £11572

Any advice on calculations? Thanks

DrEskimo

Your average interest charged per month does not factor in that it is above average at the start of the loan, as the outstanding capital is higher. 

That explains the discrepancy.

rayudu

Thanks Eskimo, do we know what is that figure at the start of the loan?

[Deleted User]

Your first month's interest will be around £27 - so in the region of £100 for the first four months.

rayudu

Thanks zx81

dlk

It would be better for you to make a lump sum overpayment instead of fully repay. 

The balance of your loan is currently 12348.52 - 514.52 = 11834

If you make a lump sum overpayment of 11319.48 it will leave you with a balance of 514.52 which will then be repaid next month by your monthly payment.

When the loan is completed in March M&s will recalculate the interest and make a refund to you of the unused interest.

Doing this saves you 28 days interest.

dlk

Actually it saves you 28 days interest PLUS  the interest you pay between now and your March payment will only be interest on 514.52 

rayudu

Thanks dlk for your advice.

rayudu

Hi dlk, I have paid £11320 on Feb 24th and direct debit of £514.52 was deducted on March 5th. After final calculation, today they returned £261.54. 

In total I have paid £514.52(Feb 5th) + £11320 ( Feb 24th)  + £514.52 ( March 5th) - £261.54 = £12087.5, looks like they charged the same amount what they quoted originally over the phone. I don't think I have saved 28 days interest PLUS  the interest I pay between Feb24th and March payment.