Should I repay a loan to Northern Rock?

SLMLK

I have an unsecured loan with Northern Rock and am in a position to repay in full. The loan has no charge for early repayment, so that is not an issue.

With the current uncertainty surrounding Northern Rock, I am unsure whether to pay it off now or wait until the final decisions surrounding it's future have been made. There was an article on the internet a couple of months ago that suggested people with unsecured debt may "get lucky" as the debts might be wiped, depening upon the bank's future. This leaves me in a quandry I'd hate to pay it off now and then find out that everyone elses loan's had been wiped in a month or so.

Please note that I am not discussing being unwilling to pay the loan should it be required, of course if the loan assets are sold on and the debts transferred, I would repay in full immediately.

Any advice gratefully received!

merlinthehappypig

Make the decision on financial grounds ie. are you better off paying the loan off or leaving the money in a high interest account. This should be easy enough to work out using the settlement figure.

As for the debt being wiped - as albertross says, not a chance.

PeteJones

Whatever happens with NR, there will not be an option to just stop paying. NR owe the Government billions, they will not go bankrupt, and even if they did outstanding debts would be chased. Nobody will just have their debt written off.

What you need to decide is whether you can use the funds that you have to better effect than repaying Northern Rock. If you can 'invest' the monies and obtain a return higher than the rate that you are being charged, do it. If you are just going to leave the cash in a low rate bank account and do nothing with it, then pay off NR.

SLMLK

Thank you for your replies. I didn't think it was likely, but it was a reputable broadsheet that suggested it might happen. It was woth asking!

I am afraid that my brain just does not compute maths properly! I am not normally a stupid person, but when it comes to cumulative interest I am completely lost!

I am in a fortunate position to have two decent choices, but I don't which is the better option.

The oustanding balance on the loan is £19,000.
The monthly repayments are £364.00
The remaining term is 60 months - 5 years (of a 7 year term).

I am also confused becuase the overall interest for the 7 years was supposed to be around £7,000, but from the final settlement figure I've been charged £3,000 in the first two years.

I can either:
1. Pay off the loan and then invest the £364.00 each month somewhere.
2. Invest the £19,000 as a lump sum and then continue to pay off the loan.

How do I work out which is best?

I am a higher rate tax payer but my husband isn't.

Thanks.

SLMLK

I'm afraid I couldn't find the article again! It was there for a while becuase I found it again to show my husband and then a few friends who have loans with NR. I should have saved the web page as a favourite.

Being of a sceptical nature, when trying to find out what might happen, I only read artciles from the main broadsheets and the pink one. It was back in November 2007. I think there's just too much about NR on the web to find it again now.

CLAPTON

Basically if there are no fees for early settlement simply compare the interest rates

what is the APR of your loan (presumably about 6-7%?)

and what can you get a AER for savings... if OH is basic tax payer then you won't get 6-7% after tax so pay the loan off.

and by the way the reason you have paid a lot of the interest off is simply that at the beginning of your loan you owe the full amount so the monthly interest is a high proportion of your repayment.
each month, however you pay a litle capital back so the proportion of monthly interest falls...towards the end of the loan you are paying only a little interest.

Just like a mortgage .. the monthly repayment is nearly all interest at the beginning and nearly all capital towards the end...nothing to do with compound interest.