HSBC loan one-off overpayment not being calculated

DocQuincy

I have a HSBC loan over 60 months. In October I made a one-off overpayment by bank transfer as instructed by their online support chat.

I expected in my banking app I would be able to log in and see that the number of monthly payments left to be reduced — but this is not the case. If I divide the number of monthly payments left by the total amount owing (inc. interest) it comes to the monthly amount I am already paying.

I rang up and queried and they confirmed the payment had come through (it does show as an extra credit in the app). I queried the number of months left and they just kept saying it was correct — so I gave up in the end.

I saw a couple of threads on here and it seems that HSBC add all the interest on from day one and then give you a rebate if you overpay/pay early.

Is this right? What I want to be able to do is overpay as I can and see the monthly number of payments come down. If this is right, then I have no way of doing this. As it stands, I have no way of seeing how far ahead I am as the app does not show this in the loan overview.

Have I understood it correctly? Is there any way for me to track overpayments?

EDIT: Sorry, it has increased the number of monthly payments made by 2. Not very clear but at least it has updated it. From what I can tell, the interest remains the same and whatever you have saved by overpayments is refunded at the end.

CliveOfIndia

DocQuincy said:

it seems that HSBC add all the interest on from day one and then give you a rebate if you overpay/pay early.

Is this right?

No, front-loading of interest is illegal.  Interest is calculated (usually monthly) based on the capital outstanding.  Towards the start of a loan, more of your monthly payment goes towards interest, as time goes on then the amount of capital reduces, meaning less interest is charged, meaning more of your payment goes towards the capital.

If you make an overpayment then you will save interest overall.

The confusion probably stems from how overpayments are treated.  Some lenders will keep your monthly payments the same but reduce the term of the loan, others will keep the term the same but reduce your monthly payments.

Different lenders have a different default process, but you can usually phone them up and ask them to either reduce the term or reduce the monthly payments (whichever one is your preference, and if it's different to their default processing).

DocQuincy

You're right, I get it now. They show you the amount you will pay in interest as it stands — and overpayments do not reduce the monthly payment.

It's just presented in the app in a way that isn't very clear. I get it now though. Thanks.