Allocation of an Overpayment

Thrugelmir

My answers still stand.  Any saving will be reflected by a shortening of the term and the total amount repaid. Basic maths principles apply. 

nyermen

Thrugelmir said:

My answers still stand.  Any saving will be reflected by a shortening of the term and the total amount repaid. Basic maths principles apply. 

Agreed - what I'm unclear on is whether it is deducted now (so outstanding principal is less from now), or whether they seem to hold the payment until the end, and then reduce outstanding principal (in which case its no different to just making the payment near to the end?).  Yes you would pay less interest, but not "as less" as you would the other way.

As I say, I worked in ALM for a while and modelled a variety of interest bearing assets (the term for loans) of many different amortisation types (the way the repayment is done - eg. constant interest and principal annuity is a typical mortgage approach), and I've never seen anyone do it that "odd way" except as part of a special structured product in france.

Superhoopza

nyermen said:

Thrugelmir said:

My answers still stand.  Any saving will be reflected by a shortening of the term and the total amount repaid. Basic maths principles apply. 

or whether they seem to hold the payment until the end, and then reduce outstanding principal (in which case its no different to just making the payment near to the end?).  Yes you would pay less interest, but not "as less" as you would the other way.

This is the only logical answer for what has happened. 

To answer Thrugelmir's point:

Not sure how many times or how I need to explain it to say that I can see my outstanding repayment schedule. I have the same number of payments left. My next payment has reduced by £500 (the amount I paid) and only the last payment amount has changed and reduced by just under £5. This means the total I will repay will be £5 less than I would have if I didn't pay £500 early.

If they have moved my payment and held it as my last payment, are they allowed to do this. Again my contract does not address this and just says my interest will reduce, which it has, but by far less than it should.

Superhoopza

I've asked for a breakdown of how they think I will save £15 in interest, yet to hear back.

TrickyDicky101

Monthly interest on £500 @ 9.9% APR is less than £4 so your monthly payment reduction looks correct.  How much was your original borrowing and over what term and what amount do you currently have outstanding?

Superhoopza

TrickyDicky101 said:

Monthly interest on £500 @ 9.9% APR is less than £4 so your monthly payment reduction looks correct.  How much was your original borrowing and over what term and what amount do you currently have outstanding?

Only the last month's payment has been reduced, all others have stayed the same.

£10k over 18 months at 9.9% APR. £600 a month, paid off 3 months worth (because they took my £500 payment as a one month early repayment, therefore only took £100) on my next repayment date (today). 

I think I've resolved it myself what they have done. They have deemed my additional payment as an early repayment and therefore presumed I'd pay the difference on my next repayment date and then go back to my original payment profile. This means only £500 would be paid, one month early, therefore I only save one month's worth of interest. Therefore to get the £4/£5 interest saving, I'd need to make this £500 payment early every month and then have the final £100 deducted on my repayment dates. 

Stupid way of doing it and I can't be bothered to do that every month so I'll forgo the potential interest saving. I've told them this was an overpayment, not an early repayment, but they didn't listen.