Loan settlement vs large overpayment. 27 March 2022 at 11:46AM in Loans 3 replies 240 views

FafferUK

I've been approved for a lloyds personal loan for a car at 3.9%. We will probably be a in position to settle the loan within a few months of taking it due to some business money coming through but it could take longer.

Settling early would incur a charge of 58 days interest added onto the balance. There doesn't seem to be the same charge with overpayments though. Looks like I could theoretically overpay the balance minus say one months repayment and only pay interest on the remaining low balance. The loan would the automatically settle after the regular payment goes through?

Anyone else tried this or know if there is a catch?

[Deleted User]

Yes, you can do that.

MrFrugalFever

Under the consumer credit act 1974 the lender is entitled to charge up to 58 days interest in the event of a full settlement, otherwise they’ve administered a loan for nil cost, which simply just doesn’t work.
I would imagine that even with your theory, you’ll still need to pay 58 days interest. The only time there is very minimal interest charged (sometimes nil with personal loans) is if the agreement has been withdrawn within 14 days as a ‘cooling-off’ period.

Edi81

With Lloyds make a large overpayment and let your direct debit make the last payment.