Early settlement question

CeeJayell

Hi,

I have been offered a loan by A & L which I am going to use for a new conservatory, decorating, etc.

Now I maybe in a position to overpay this within around 3-6 months but before accepting the loan I want to understand how much early repayment will cost me.

The loan is for £15,000 over 5 years and the rate offered is 9.7 % APR so the total amount due over the full period is £18,827.40

Can anyone tell me how much I would be asked for if I settled the loan after 3 or 6 months?

Thanks

CJ

CeeJayell

Can I anyone help?

Basically I want to know if i paid off the loan within a few months would I have to pay the full £18,827.40 or just the £15,000 + a portion of interest?

Thanks

homer_j_3

I dont know the answer but are you going to pay the full amount off in 3-6 months or just part of it off or start making regular overpayments?

Overthetop

I dont know either but im sure it will be in the T&C's or you could phone and ask them

CeeJayell

I'm hoping to start making payments as normal and then if / when my situation changes pay the remaining balence off.

homer_j_3

work on the higher amount then and if its less, its a nice surprise.

Rafter

CJ,

I believe that A&L have a standard 1 month interest penalty clause.

A months interest on £15000 at 9.7% is going to be about £120 to pay it off early.

The interest cost is going to be around £120 a month too, so if you pay off after 3 months the total cost will be about £15,500 (original loan plus 3 months interest plus penalty) or about £15,840 after 6 months.

You can avoid the penalty by going for a flexible loan. The post office and AA do these with a typical apr of 7.9%, so you could save yourself £180 over 3 months or £240 over 6 months.

Good luck

R.

CeeJayell

Thanks for the info. Can I ask how you work out the amount of interest i'd be paying each month.

I have seen some formula on here but I do not have a maths degree which is required to understand it.

Is there a laymans way of working things out? I'd like to put it into a spread sheet so I know near enough where i am at any time?

Thanks again for the replies

CLAPTON

In the first month the interest is 15,000 x 9.7%/12 approximately so £121 per month.

So your monthly payment of around 313 pays 121 interest and repays 192 capital.

so the second month you owe 15,000-192 = 14808
so your interest is 14808 x 9.7%/12 = 119.70

etc etc.
As the months go by, the amount owed decreases and so does the interest
charged


note that the monthly interest rate of 9.7%/12 isn't quite right as you need to include 'compound interest' but it shows the principle and is a good approximation.