Paying off loan early...

[agnes]

Keep this short and simple.

I have a loan with my bank with a remaining £1100, it has been sapping minor amounts for the last 2 years. Slowly decreasing, this weekend I have decided the hell with it and just pay it all off in one go. Can I simply do that? I have to wait until 0915 to ring the branch. So thought maybe I would ask you lot.

I am with RBS. Such a small and annoying loan, silly of me to let it drag out like this

Cheers

 

[Kamwah]

It will say in the paperwork about the Loan. It's highly likely they'll charge you a small amount for paying it off early.

 

[agnes]

It will say in the paperwork about the Loan. It's highly likely they'll charge you a small amount for paying it off early.

Sadly, along side most of my other belongings, everything is boxed up in a storage warehouse still after moving back into the rents. Including 90% of my paperwork bar the essentials. Otherwise would have looked up last night.

I have tried searching their site, but I can't find a single thing!

 

[The Halk]

Most likely you'll pay around £15 as a early repayment charge, and be refunded the unused interest. It's worthwhile paying it off.

 

[agnes]

Most likely you'll pay around £15 as a early repayment charge, and be refunded the unused interest. It's worthwhile paying it off.

Yea, should be £75 odd lighter each month as well.

Literally clearing out cobwebs (again) this weekend. Over £2k going on things that have been sat on the *to do* list of paying things haha.

Was meant to go on a nice holiday... But, that can wait

 

[loopylou]

When I called RBS about this they said to pop into branch or do the telephone banking and they will give you a settlement figure that will take into account any additional interest but there shouldn't be any problems paying it back.

 

[Deleted member 77746]

Phone them up and ask.

 

[Neutralmilk]

Depending on how your loan was financed you may only have to pay back some of the balance. They will remove the interest you would have left to pay on the term of the loan.

However banks are very fly when it comes to this as the first thing you pay back on a loan is the interest meaning you won't have a big discount from the outstanding amount but you probably will have to pay around £1,050 to pay it off early in total.

 

[Admiral Huddy]

Most likely you'll pay around £15 as a early repayment charge, and be refunded the unused interest. It's worthwhile paying it off.

Depends on the credit agreement. Not all loans are the same. If it's a fixed term loan with fixed interest then paying up makes no difference as the interest you agreed to pay is still payable regardless. But as I said, it really depends on the facility you bought in the first place. Some will allow early repayments and only charge interest to the settlement date. Check the T&Cs.

However banks are very fly when it comes to this as the first thing you pay back on a loan is the interest meaning you won't have a big discount from the outstanding amount but you probably will have to pay around £1,050 to pay it off early in total.

Interesting.

 

[Deleted member 77746]

Depending on how your loan was financed you may only have to pay back some of the balance. They will remove the interest you would have left to pay on the term of the loan.

However banks are very fly when it comes to this as the first thing you pay back on a loan is the interest meaning you won't have a big discount from the outstanding amount but you probably will have to pay around £1,050 to pay it off early in total.

A very cheeky money scam. A lot of people do pay it off early and they make a fortune for it.

 

[The Halk]

Depending on how your loan was financed you may only have to pay back some of the balance. They will remove the interest you would have left to pay on the term of the loan.

However banks are very fly when it comes to this as the first thing you pay back on a loan is the interest meaning you won't have a big discount from the outstanding amount but you probably will have to pay around £1,050 to pay it off early in total.

I'm sorry, that's incorrect.

 

[agnes]

£1154.28 to pay exactly if I were to walk into the bank on Saturday and hand cash over to end the account entirely. That's including fee's and stuff. Fixed loan

Oh well! Get it out of the way and off my back, will be nice.

 

[Neutralmilk]

I worked in sales for a bank for 4 and a half years and that's how they processed loans, any lending and you had to pay the interest before the balance of the loan.

I actually paid off a loan early recently and paid just below the amount left as the interest had already been paid off. With the majority of loans you pay the interest first.

 

[The Halk]

Depends on the credit agreement. Not all loans are the same. If it's a fixed term loan with fixed interest then paying up makes no difference as the interest you agreed to pay is still payable regardless.

As far as my understanding goes that would not be a legal credit agreement.

 

[The Halk]

I worked in sales for a bank for 4 and a half years and that's how they processed loans, any lending and you had to pay the interest before the balance of the loan.

I actually paid off a loan early recently and paid just below the amount left as the interest had already been paid off. With the majority of loans you pay the interest first.

You are wrong. What's more after working for a bank for 4 and a half years I'm stunned.

When you take out a loan your payments are set to be the same across the term. This means at the start of the loan when you owe the full balance then the amount of interest which accrues is higher than it is towards the end, when you owe relatively little.

This means that of the 200 payment, at the start you may be paying 150 interest and 50 capital, toward the end the position could be reversed.

If you were to repay the loan early, for example half way through, this means you will have not paid half of the capital balance. If it was 10,000 you owed then you would not owe 5,000 half way through. This is not unfair, it's not in the banks favour, it's not banks being fly. It's mathematical fact.

It's the same with a mortgage. You don't pay off 1/4 of a 20 year mortgage in the first 5 years. That's fair too.

 

[Neutralmilk]

I’m amazed I worked for a bank as well...I have made a mistake (it’s early in the morning)

I was basing it on PPI and not interest which is my mistake and it’s an honest mistake not trying to tell any fibs. If you take payment protection this is paid first before the balance of the loan, I’m sorry for any confusion and I’m blaming it solely on the lack of coffee this morning.

 

[Voltjunkie]

As far as my understanding goes that would not be a legal credit agreement.

This can be perfectly legal. It's not a common way to charge interest (in fact, I've not heard of it being used outside of sub-prime lending) but some lenders will calculate the charge for credit based on the interest to be paid and add this to the balance at the start of the term. Thus you pay an always reducing balance made up of capital and interest with no gain to be made by paying the loan off quicker.

 

[The Halk]

This can be perfectly legal. It's not a common way to charge interest (in fact, I've not heard of it being used outside of sub-prime lending) but some lenders will calculate the charge for credit based on the interest to be paid and add this to the balance at the start of the term. Thus you pay an always reducing balance made up of capital and interest with no gain to be made by paying the loan off quicker.

It's common to add it to the capital balance at the start of the term, but it's, as far as my understanding of the legislation goes, illegal not to refund it in the event of early payment.

I can't fathom how it would work with the new legislation that came in for lump sum payments a couple of years back.

 

[Admiral Huddy]

As far as my understanding goes that would not be a legal credit agreement.

You are correct but it does depend on the loan itself and most of the lending we do here is corporate lending.

From Visa :

You should also look out for any extra amounts charged if you decide to repay a loan early. These charges normally apply only to fixed rate loans.

Following some recent changes to the law, lenders can only charge you a maximum of two months’ interest as an early repayment penalty for most loans, although for long term loans – those lasting more than five years – the penalty can be greaterIt can be difficult to work out what credit will actually cost you – either monthly, annually or in the longer term.

Many factors affect what you will actually pay back, including:

Your credit status – the better it is, the lower the interest you are likely to pay

Whether the loan is fixed term or open-ended
How the interest is calculated – whether it is compounded daily, weekly, monthly or yearly

Whether the interest charged is fixed or variable

Any arrangement or maintenance fees

Any penalties for paying off the loan early

For example, you might take out a loan of £10,000, at 15 per cent interest, compounded annually. You can afford to pay £278.31 a month, which would clear the entire debt in exactly four years.

It's always best to check what sort of agreement you are getting into before committing.

You are wrong. What's more after working for a bank for 4 and a half years I'm stunned.

20 years

 

[The Halk]

Oh, he was working for a bank for 4 and a half years... for me it's just under 10. I'm glad to see I'm not alone on the forums though!

As to what you've said about early repayment charges... most banks as far as I'm aware stick to the 2 months penalty even if it's over 5 years. However they'll do it on the capital sum rather than the current balance, meaning it's more than you might think.

Certainly though it's utterly wrong to charge all the interest up front and then not refund it when the loan is paid of early.

As for corporate lending it doesn't have the same protections that are granted by the CCA.