Paying extra to a loan

JonnyKebab99

Hi.
So my partner has a mortgage, every 2 weeks I pay an extra £35 to it. Monthly mortgage payments never change as a result of doing so, but we know it will benefit us when the fixed rate period ends and looking to remortgage.

I have a loan which I pay £400+ to per month. I started trying to pay with an extra £50 one month then £80 the next month. Thing is, the monthly payment of £400+ per month was then reduced by both the £50 then £80. I contacted the bank who said this was normal for them, that any extra payments don't come off the principle amount but only my monthly repayment.

How can it be done with one lender but not another? Both are fixed rate

thank you

la531983

Because one is a loan and another is a mortgage.

CliveOfIndia

It's worth contacting the bank to ask them if the overpayments can be used to reduce the term rather than the monthly payment.  Different lenders do it differently - some will, by default, keep your monthly payments the same, meaning the term is reduced.  For others, the default position is to reduce the monthly payments.  But usually (maybe not always) you can ask to switch from one approach to the other.

If the bank are adamant that they can only use overpayments to reduce the monthly payments, then stick the extra into a savings account instead.  You probably won't be able to earn as much interest as what you'd be able to save on the loan, but it's better than nothing - which is what you're effectively getting by making overpayments in the situation you describe.

Nearlyold

If you make an overpayment to any form of regulated consumer loan the legislation states the lender must offer either a reduction in the term or a reduction in the monthly payment - it is up to the lender to choose which option to offer. The legislation also allows the lender to offer both options if they wish to, but this is not compulsory