Quick loan question please

joshtbh

Hi,

I was having a discussion with a friend who wanted a loan and we reached loggerheads about one part of a loan's conditions :

Say I wanted to borrow £5000 from a major lender, like Sainsbury's for example over 3 years, but I wanted to pay the loan back after 10 months, and they have in their terms "up to 58 days interest is the early redemption charge", will I have to pay approx £400 for this?

thanks.

Rafter

josh,

Most personal loans have an interest penalty if you want to repay early and don't generally this part repayment.

There are a few flexible loans out there that do (eg Egg) - but these are generally at a higher interest rate because the lender has no guarantee they are going to earn interest for the whole loan period and still have to cover the costs of setting up the loan in the first place.

The daily interest on a £5000 loan at 10% is about £1.40 so the penalty if you repaid on day 1 is about £82. However as you pay the loan off this will reduce.

Generally the conditions will mean that you pay the full penalty, even if you only repay part of the loan, because the bank will effectively have to end your current loan and give you a new one with new repayments based on your smaller loan size.

R.