Clearing a loan how much interest should i pay at settlement?

garymdsc

Just clearing a fixed rate 60 month loan with 15 months to go. Settlement figure is only £138.69 less than the outstanding amount, even though the interest per month works out at £46.62. My issue is that clearing the loan early should actually mean i save more interest over teh total loan than just the £138.69. When i talked to the bank a few months ago there seemed to be a much bigger saving. Have the rules changed? Can anybody advise? Thanks...

CLAPTON

give the full figures if you like

initial amount borrowed
apr
period of loan
monthly payment

details of PPI if any
details on any payment free months

then
settlement figure
and number of payment actually made


however you may wish to note that the interest is charged just like in a mortgage...
the interest is worked out by multiplying the capital owing times the monthly interest rate
so in the early months of the loan you owe the full amount and so your monthly payment includes a lot of interest and is repaying only a little capital....
however each month the amount of capital falls a little so the amount of interest charges falls too so at the end of the loan you are paying mostly capital and only a little interest

garymdsc

Clapton

Thanks for coming back.

15,500 loan over 5 years
304.96 per month
total repayable 18,297.60

i take you point about front loading of the interest but i am questioning to what extent this is. Basically if i only stand to save 138.69 of interest i may as well carrying on the loan for another 15 months and put the 4,435.71 that i would be paying somewhere else?

thanks

gary

sdooley

Sometimes there will be a %age charge for settling early that you can get round by 'overpaying' instead: e.g. for a £4,000 outstanding balance repay £3,700 and let your next £300 monthly payment clear the balance.

garymdsc

Thankyou for the reply - no there is no penalty for early resettlement. Do tehfigures look right though - if that is taken into account?

On another note why do i have to keep logging in to reply??????

CLAPTON

I'm not sure I would use the words 'front loaded' as all that happens is the obvious fact that for any given interest rate the more you owe the more the interest charged (or earned) is.

anyway
after 45 payments of the debt (which is at approximately 7.15% apr) you owe about 4373 in capital and if you pay the 60 payments you will pay another 200 in interest

they are allowed to add about two month interest as an early settlement penalty.

Its pretty marginal whether you simply continue paying or clear the debt.