Making overpayments on HP car finance - how does the 'saving interest' work? 28 January at 9:02PM in Debt-free wannabe 8 replies 394 views

honeybee1234

Hi all 

Looking for a bit of knowledge after Googling but I can't find definitive answers, so hopefully someone can help!

I have HP car finance through Santander, and have 19 months left of a 60 month agreement. My circumstances are now very different to when I got the car, and as I want to keep it, I opted to carry on with the finance, making overpayments where I can. Overpaying reduces the monthly payment but the term remains the same.

Santander and anything I read on Google tell me that making extra payments will save me interest. Santander even told me last month how much interest my last overpayment will save me. But I was just thinking that I don't know what that looks like. Am I having these amounts of interest deducted from the balance? Is it an amount I'll receive at the end of the term? Magical option c that I haven't thought of? 

This has only just occurred to me and I can contact them on Monday, I just wanted to know how it worked because I can't quite visualise it. I get the premise, I just don't know how it works on paper.

Thanks! 

DrEskimo

As with any loan, interest is charged daily on the outstanding balance. The total balance will show you the expected interest you will be charged over the term if you don't change the payments or length, but it's important to note that this isn't charged upfront. It's charged daily.

So you don't see any payments back. What happens is you end up paying less interest (and therefore less overall) over the remaining term following the overpayment than you would have paid had you not made the overpayment (since the balance has been lowered more than originally agreed without the overpayments).

honeybee1234

DrEskimo said:

As with any loan, interest is charged daily on the outstanding balance. The total balance will show you the expected interest you will be charged over the term if you don't change the payments or length, but it's important to note that this isn't charged upfront. It's charged daily.

So you don't see any payments back. What happens is you end up paying less interest (and therefore less overall) over the remaining term following the overpayment than you would have paid had you not made the overpayment (since the balance has been lowered more than originally agreed without the overpayments).

Ahhhh all right, this explanation makes perfect sense now you've said about interest being daily. Thankyou for that. So saving/utilising the difference each month between the original payment amount and what I'm currently paying each month and calculating it over the term is going to be a real motivator.

Only 19 months to go! 

DrEskimo

honeybee1234 said:

DrEskimo said:

As with any loan, interest is charged daily on the outstanding balance. The total balance will show you the expected interest you will be charged over the term if you don't change the payments or length, but it's important to note that this isn't charged upfront. It's charged daily.

So you don't see any payments back. What happens is you end up paying less interest (and therefore less overall) over the remaining term following the overpayment than you would have paid had you not made the overpayment (since the balance has been lowered more than originally agreed without the overpayments).

Ahhhh all right, this explanation makes perfect sense now you've said about interest being daily. Thankyou for that. So saving/utilising the difference each month between the original payment amount and what I'm currently paying each month and calculating it over the term is going to be a real motivator.

Only 19 months to go! 

Exactly right!

So you could set that difference aside and add it to any overpayments too

All the best with your debt free journey!

SusieT

honeybee1234 said:

Only 19 months to go! 

If you keep going with the overpaymentsit could be 18 months to go - or 17, 16, 15.......

honeybee1234

DrEskimo said:

honeybee1234 said:

DrEskimo said:

As with any loan, interest is charged daily on the outstanding balance. The total balance will show you the expected interest you will be charged over the term if you don't change the payments or length, but it's important to note that this isn't charged upfront. It's charged daily.

So you don't see any payments back. What happens is you end up paying less interest (and therefore less overall) over the remaining term following the overpayment than you would have paid had you not made the overpayment (since the balance has been lowered more than originally agreed without the overpayments).

Ahhhh all right, this explanation makes perfect sense now you've said about interest being daily. Thankyou for that. So saving/utilising the difference each month between the original payment amount and what I'm currently paying each month and calculating it over the term is going to be a real motivator.

Only 19 months to go! 

Exactly right!

So you could set that difference aside and add it to any overpayments too

All the best with your debt free journey!

I'm going to do this for sure! And thankyou 

SusieT said:

honeybee1234 said:

Only 19 months to go! 

If you keep going with the overpaymentsit could be 18 months to go - or 17, 16, 15.......

Ahh if only... I can reduce the monthly payment by overpaying, but it doesn't reduce the term, so I'm locked in til next year! 

Wonka_2

honeybee1234 said:

DrEskimo said:

honeybee1234 said:

DrEskimo said:

As with any loan, interest is charged daily on the outstanding balance. The total balance will show you the expected interest you will be charged over the term if you don't change the payments or length, but it's important to note that this isn't charged upfront. It's charged daily.

So you don't see any payments back. What happens is you end up paying less interest (and therefore less overall) over the remaining term following the overpayment than you would have paid had you not made the overpayment (since the balance has been lowered more than originally agreed without the overpayments).

Ahhhh all right, this explanation makes perfect sense now you've said about interest being daily. Thankyou for that. So saving/utilising the difference each month between the original payment amount and what I'm currently paying each month and calculating it over the term is going to be a real motivator.

Only 19 months to go! 

Exactly right!

So you could set that difference aside and add it to any overpayments too

All the best with your debt free journey!

I'm going to do this for sure! And thankyou 

SusieT said:

honeybee1234 said:

Only 19 months to go! 

If you keep going with the overpaymentsit could be 18 months to go - or 17, 16, 15.......

Ahh if only... I can reduce the monthly payment by overpaying, but it doesn't reduce the term, so I'm locked in til next year! 

But what exactly does your agreement say re overpaying ? 

If you have (for example) £200 per month to pay for 18mths and you want to pay £300 per month then your agreement can't continue for 18mths as you'll have paid it off after 12mths.

Does you agreement allow this ?

honeybee1234

Wonka_2 said:

honeybee1234 said:

DrEskimo said:

honeybee1234 said:

DrEskimo said:

As with any loan, interest is charged daily on the outstanding balance. The total balance will show you the expected interest you will be charged over the term if you don't change the payments or length, but it's important to note that this isn't charged upfront. It's charged daily.

So you don't see any payments back. What happens is you end up paying less interest (and therefore less overall) over the remaining term following the overpayment than you would have paid had you not made the overpayment (since the balance has been lowered more than originally agreed without the overpayments).

Ahhhh all right, this explanation makes perfect sense now you've said about interest being daily. Thankyou for that. So saving/utilising the difference each month between the original payment amount and what I'm currently paying each month and calculating it over the term is going to be a real motivator.

Only 19 months to go! 

Exactly right!

So you could set that difference aside and add it to any overpayments too

All the best with your debt free journey!

I'm going to do this for sure! And thankyou 

SusieT said:

honeybee1234 said:

Only 19 months to go! 

If you keep going with the overpaymentsit could be 18 months to go - or 17, 16, 15.......

Ahh if only... I can reduce the monthly payment by overpaying, but it doesn't reduce the term, so I'm locked in til next year! 

But what exactly does your agreement say re overpaying ? 

If you have (for example) £200 per month to pay for 18mths and you want to pay £300 per month then your agreement can't continue for 18mths as you'll have paid it off after 12mths.

Does you agreement allow this ?

I don't have the paperwork with me at the mo, but what I know off the top of my head is I can make overpayments separately to the monthly direct debit, which are used to lower the monthly amount. Each time I overpay, Santander part settle the balance, but if overpayments bring the monthly payment down to 1p, then any overpayments will be refunded back. I know I can request a settlement figure but without the paperwork I don't know the intricacies of that. 

kimwp

honeybee1234 said:

Wonka_2 said:

honeybee1234 said:

DrEskimo said:

honeybee1234 said:

DrEskimo said:

As with any loan, interest is charged daily on the outstanding balance. The total balance will show you the expected interest you will be charged over the term if you don't change the payments or length, but it's important to note that this isn't charged upfront. It's charged daily.

So you don't see any payments back. What happens is you end up paying less interest (and therefore less overall) over the remaining term following the overpayment than you would have paid had you not made the overpayment (since the balance has been lowered more than originally agreed without the overpayments).

Ahhhh all right, this explanation makes perfect sense now you've said about interest being daily. Thankyou for that. So saving/utilising the difference each month between the original payment amount and what I'm currently paying each month and calculating it over the term is going to be a real motivator.

Only 19 months to go! 

Exactly right!

So you could set that difference aside and add it to any overpayments too

All the best with your debt free journey!

I'm going to do this for sure! And thankyou 

SusieT said:

honeybee1234 said:

Only 19 months to go! 

If you keep going with the overpaymentsit could be 18 months to go - or 17, 16, 15.......

Ahh if only... I can reduce the monthly payment by overpaying, but it doesn't reduce the term, so I'm locked in til next year! 

But what exactly does your agreement say re overpaying ? 

If you have (for example) £200 per month to pay for 18mths and you want to pay £300 per month then your agreement can't continue for 18mths as you'll have paid it off after 12mths.

Does you agreement allow this ?

I don't have the paperwork with me at the mo, but what I know off the top of my head is I can make overpayments separately to the monthly direct debit, which are used to lower the monthly amount. Each time I overpay, Santander part settle the balance, but if overpayments bring the monthly payment down to 1p, then any overpayments will be refunded back. I know I can request a settlement figure but without the paperwork I don't know the intricacies of that. 

Ah, ok, so you need to only pay off enough so the remaining balance equates to 2p a month payment.