A question of priorities?

Holeypockets

Evening fellow DFWs.
I am in a position where I can throw a little extra cash at some debts but I am unsure which I should tackle first. I know the usual advice is to pay the one with the largest interest rate first. This would be a NR loan @ 8.2% but if I overpay I am only reducing the term because the interest has already been taken and added on to the original loan amount. This leaves the next debt which is a Lloyds loan @ 6.4% - I do believe if I overpay this it will redue the interest (but I ned to check) so it might be worthwhile. The last option is to overpay the mortgage - albeit by a small amount but it will reduce the interest for sure.

Any advice please?

CLAPTON

why do you say the NR interest has been added on the original loan... when did you take it out, what do the T&Cs say about this?

Holeypockets

The interest was added on to the original amount and then the total divided by the number of months to repay. Is this not normal?

jay11_2

have you called NR to check, we had this with a NW loan and were told excess interest would be refunded upon settlement, as it was when the loan was paid off. I checked it by calculating 'total months left' x 'monthly payment', then calling NW for a settlement figure if 'paid before next payment' and comparing the 2 figures. i think they have legal obligation to refund outstanding interest,
good luck, Jay

Holeypockets

thanks for that I have asked them about overpayment which is when they stated that only the term will reduce - not the interest payments

Gemmzie

What's your mortgage rate?

Holeypockets

5.94% (tracker) no penalties for the overpayment I want to make.

Gemmzie

Check with the terms of the NR loan - you should be able to settle early if not overpay. Then you can save and settle early.

If not, I'd overpay half to Lloyds and half to the mortgage as the rates are so close and having less mortgage is always a bonus.