Loan repayment terms, what does this mean?

spabbygirl

I'm helping someone reduce their loan but it has the following clause. we're likely to reduce it from £6k to £3k now, does that mean we can't pay the whole lot off in a few months's time?

'you'll still need to make a monthly repayment
paying more will reduces the size of your the amount of interest you pay and the cost of your monthly repayments but the loan term will remain the same.'

born_again

If you have the funds to pay it off ask for a settlement figure.

spabbygirl

Yes, I will do that in time, but we don't have the funds now, but the interest rate is 22% so I guess paying off anything is better than nothing

molerat

All that term means is that if you make a capital repayment they will reduce the ongoing monthly payments to keep the loan end date / number of payments as per the contract.  Paying a lump sum will lower the total loan cost.

spabbygirl

molerat said:

All that term means is that if you make a capital repayment they will reduce the ongoing monthly payments to keep the loan end date / number of payments as per the contract.  Paying a lump sum will lower the total loan cost.

Thanks Molerat, that is good 

Herzlos

When you overpay a loan there's often 2 options:

1. Reduce the term and keep the payments the same. This will save you most in the long run because you pay it off faster but maintains the high payments.

2. Reduce the payments and keep the term the same. This will cost you a little bit more in the long run but obviously reduces the payments in the mean time.

Both will save you significant money if you're overpaying a £6k 22% loan by £3k. With the reduced payment, if you can afford to then you should try and overpay by the difference to clear it even faster.