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  • FIRST POST
    • Humbug2
    • By Humbug2 15th Apr 19, 4:05 PM
    • 1Posts
    • 0Thanks
    Humbug2
    Early repayment charge
    • #1
    • 15th Apr 19, 4:05 PM
    Early repayment charge 15th Apr 19 at 4:05 PM
    Hi All,

    Hoping for a quick response today.
    I took out a 9600 M&S loan over 72 months at 6.9%, a few years ago. It has 19 months to run and my total outstanding debt is 3244, but today I'm in a position to pay it off. I contacted the bank last week and asked for a final settlement amount. The final settlement amount is 3099. This means I will be saving approx. 145 by paying it off early. This seems too low to me, I think I should be saving more.

    Here is my reasoning (I could be wrong!):
    The interest was added to the loan on day one, so my balance on the loan went from 9600 to 11,681 with interest. That means I'm paying a total of 2081 in interest.

    Divide 2081 by 72 months and you get approx. 28.90 per month interest. If I pay the loan off 19 months early, surely that means I'm saving 19 x 28.90 = 549. Subtract two months interest for early repayment fee and I should be saving 491, so why am I only saving 145?

    I fully admit I don't really understand this business but any help understanding this would be appreciated.

    I will be challenging this on the phone but wanted to know if I'm right or spectacularly wrong before charging in.

    Cheers, H
Page 1
    • zx81
    • By zx81 15th Apr 19, 4:09 PM
    • 21,735 Posts
    • 23,650 Thanks
    zx81
    • #2
    • 15th Apr 19, 4:09 PM
    • #2
    • 15th Apr 19, 4:09 PM
    You're spectacularly wrong, so hold off on that phone call. You've misunderstood how interest works.

    It wasn't added on to your loan day one, It's calculated daily and added monthly. That means that more of your payments go towards interest in the early stages - it's not 28 a month interest. In the first few months, it was around 54.

    Two months interest will be charged on your current capital balance as part of early settlement.
    Last edited by zx81; 15-04-2019 at 4:12 PM.
    • foxy-stoat
    • By foxy-stoat 15th Apr 19, 4:29 PM
    • 4,002 Posts
    • 2,323 Thanks
    foxy-stoat
    • #3
    • 15th Apr 19, 4:29 PM
    • #3
    • 15th Apr 19, 4:29 PM
    Your first month interest on 9600 is around 55, a months interest on 3200 is about 12.

    Just pay the settlement figure if you can and close the account.
    • Socajam
    • By Socajam 15th Apr 19, 5:01 PM
    • 163 Posts
    • 170 Thanks
    Socajam
    • #4
    • 15th Apr 19, 5:01 PM
    • #4
    • 15th Apr 19, 5:01 PM
    You're spectacularly wrong, so hold off on that phone call. You've misunderstood how interest works.

    It wasn't added on to your loan day one, It's calculated daily and added monthly. That means that more of your payments go towards interest in the early stages - it's not 28 a month interest. In the first few months, it was around 54.
    Two months interest will be charged on your current capital balance as part of early settlement.
    Originally posted by zx81
    That's the same as having a repayment mortgage - more of the payments goes towards the interest in the early stages.
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