Overpayments - Reduce term or monthly payment?

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lucasmeister
lucasmeister Posts: 54 Forumite
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in Loans
Hello all.


I took a out a loan to consolidate all of my debt. With Tesco I can overpay without any penalty so I opted for a longer term, and plan on overpaying when I can, rather than a shorter term, which would tie me to larger monthly payments.


Tesco say when I overpay I can either shorten the term or reduce monthly payments.



Would the options be fairly similar in terms of how much interest I would be avoiding? I can't quite work it out..


Thanks

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  • [Deleted User]
    [Deleted User] Posts: 35,242 Forumite
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    The one that saves you the most money is reducing the term and maintaining payments.
  • Craig1981
    Craig1981 Posts: 769 Forumite
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    I do this with my tesco loan...
    contact them once only to let them know any overpayments you make you want to come off your term, and not to reduce your monthly repayments. only need to do this once befor eyour first overpayment is made
    you can load the loan account onto their tesco app, which is handy, as you will see interest rebate once overpayments are made, and see how much interest you saving for each overpayment
  • Craig1981
    Craig1981 Posts: 769 Forumite
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    just to add.. you will save a lot more interest if overpaying and reducing your term, not your payments
  • trailingspouse
    trailingspouse Posts: 4,035 Forumite
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    I'm sure previous posters are right about saving more interest in the long run if you reduce your term rather than the monthly payments. BUT - you don't get the benefit of that reduction until the loan is paid off, which could be years from now. If you are short of money in the here and now, it might make more sense to opt for the reduced monthly payments. And another thing to factor in is how much you might earn in interest if you put the difference between your old monthly payments and the reduced ones into an interest-bearing account.
    No longer a spouse, or trailing, but MSE won't allow me to change my username...
  • Craig1981
    Craig1981 Posts: 769 Forumite
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    trailingspouse wrote: »
    I'm sure previous posters are right about saving more interest in the long run if you reduce your term rather than the monthly payments. BUT - you don't get the benefit of that reduction until the loan is paid off, which could be years from now. If you are short of money in the here and now, it might make more sense to opt for the reduced monthly payments. And another thing to factor in is how much you might earn in interest if you put the difference between your old monthly payments and the reduced ones into an interest-bearing account.

    with tesco, you see total balance outstanding including interest, from day one. each time you make an overpayment, your interest is adjusted and shows up on your statement within a couple of days
    on mine last three months overpaid total of £710, rebate of interest has been £101.17

    im not earning £101.17 interest on putting the £710 in a savings account. naturally as the loan get on, less interest to be paid, less rebate to come etc

    i will be planning once loan complete to post up all calculations, savings etc
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