Minimising ERC on Tesco loan

williamcroome

Hi, I have a £5000 loan with still 4.5 years to run at approx 6%.
I now have the funds to pay it off. I know I can make unlimited overpayments without charge but if I pay fully off there is ERC.

Can I pay a substantial amount but leave the remainder to be paid off on the next installment, or will that still trigger an ERC.
Even then, in general is ERC calculated based on remaining amount (I think it is 2 months interest) so if I then requested settlement it would only be based of the small amount left.

It is a Tesco loan if that makes a difference.

TIA

eschaton

I believe that if you make an overpayment for the balance bar a token amount, then as you say, the ERC will be minimised and based on the balance.

I’ve never had a personal loan so no experience but that’s how I believe it works. The loan T&C’s should confirm this.

retiredbanker1

The devil will be in the detail i.e. your CCA agreement.

However most loan companies will let you make ad hoc payments without penalty.

Check the outstanding balance - pay this amount - let the next direct debit go through.

If this pushes your loan into credit then they will issue you with a refund and close the loan. = no ERC

williamcroome

Thank you both.

Yes I can definitely overpay without penalty.

And reading through the T&Cs it seemed I could use this work around.. I just wondered why anyone would pay off full amount and get a ERC.

Seems like the kind of loop hole they would be keen to shut down.

Anyway - let's see.

retiredbanker1

https://forums.moneysavingexpert.com/discussion/comment/81928833#Comment_81928833

You might get an ERCif you ask them for a settlement balance.

Don't contact them just do as my previous post suggested.