My Community Bank Loan

zac123

Hello everyone,
I got a fairly hefty loan from My Community Bank and I pay approx £550/m. I'm now in a position that I can make over payments but I've noticed that the over payments are reducing the term of the loan but are still being split between principle and interest. 
I phoned them today to ask if my over payments could be taken from the principle only. First of all they had no idea what I was referring to but after a few minutes they came back with: "there is no way you can save money".
So I'm just wonderng... am I being naive? Is this just how loans work? Or is it worth pursuing? 
many thanks
zac

sourcrates

It appears that "My Community Bank" started life as a credit union, the terms and conditions associated with your loan, may differ from a standard repayment loan, from a mainstream lender.

You need to check your credit agreement for the terms particular to your loan.
If you don`t have your copy, assuming your agreement is CCA regulated, ask for one under sec 77 CCA.

Template letters are available on this site and others.

Ebe_Scrooge

When you make an overpayment, you're reducing the capital amount more quickly than you would otherwise be doing.  As you've said, this reduces the term of the loan, ergo you pay less interest overall.  So you are saving money.  You still need to pay off the interest that has accrued each month, but any excess over that reduces the capital more quickly.

To illustrate using simple figures.  Let's say you borrow £1000.  Month 1, you're charged interest on £1000.  Say your monthly payment is £100, that's £10 interest and £90 off the capital.  So next month you're charged interest on £910.

If you pay £150 a month instead of £100 ... first month you're still paying off the £10 interest, but now you've wiped £140 off the capital.  So next month you're only charged interest on £860.

So you're saving interest, and clearing the loan more quickly.

(These are simplified figures and ignore compound interest, but the principle is the same).

zac123

thank you both for your answers. this has helped a lot.