Loan Query

14
Found 29th Jan
Hi, hoping someone can help as I think I’m being super dim!

I have a loan that I’m looking to make extra payments on as well as the monthly ones.

My bank advised there’s a 2 month interest penalty to pay on extra payments. They also said it would be more beneficial to me if I saved up and made larger extra payments instead of smaller frequent ones, eg instead of paying £100 extra for 5 months I should save this up and make one additional payment of £500.

In my mind the interest would equate to the same on both these options, what am I missing?

Thanks!
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It sounds like you are missing the same thing many people miss. A good read of the Ts&Cs BEFORE signing. Getting into a contract is easy. Getting out is usually harder and when it's a bank, commonly involve s a good rogering for the borrower

Interest calculations are explained in there and you should in no way expect the calculation to be an obvious, fair and easy to understand one.
"what am I missing?"

"My bank advised there’s a 2 month interest penalty to pay on extra payments."

^This. One overpayment will mean one two month interest penalty. 5 overpayments will mean 5 two month interest penalties!
They are right. Doing one larger payment means just one "two month interest penalty" (of your normal interest amount).

5 smaller payments would be 5 x two month penalty (of your normal interest). So 10 months of interest.
from your description, the 2 month penalty is the same in nominal amount irrespective of the value of the over payment, that is, if you overpaid £100 or £500 in any month, the penalty would be the same in monetary value?
You can negotiate with the bank to alter their terms. Although one big lump sum would be a no brainer than smaller overpayments.
''If for any reason you aren’t satisfied with how lenders have dealt with your early repayment – for example if you think you’re being overcharged or treated unfairly, you should complain.'' Although just complain to the bank if they are unwilling to change your repayment amounts etc.
Best to walk into branch and discuss with an advisor there (Also, do not try to threaten them with the financial ombudsman ).
Original Poster
ccnp3 h, 55 m ago

It sounds like you are missing the same thing many people miss. A good …It sounds like you are missing the same thing many people miss. A good read of the Ts&Cs BEFORE signing. Getting into a contract is easy. Getting out is usually harder and when it's a bank, commonly involve s a good rogering for the borrowerInterest calculations are explained in there and you should in no way expect the calculation to be an obvious, fair and easy to understand one.


Hahaha honestly it’s like you’ve already them. I asked prior to agreeing to it if I could make additional payments at no cost which they confirmed but lo and behold was not the case.

The T&C’s state

“ You have the right to repay the credit early at any time in full or partially.

If you chose to repay the Loan early, either in full or in part then additional interest will be payable. This will be an amount equal to 58 days interest at the Annual Rate of Interest (28 days’ interest only if the original period of the loan is one year), calculated on a daily basis on (a) the amount by which the outstanding balance of the Loan is reduced by the overpayment or (b) where the Loan is repaid early, on the amount of the outstanding balance of the Loan which is repaid ahead of the due date.”
Original Poster
cdm223 h, 42 m ago

"what am I missing?""My bank advised there’s a 2 month interest penalty to …"what am I missing?""My bank advised there’s a 2 month interest penalty to pay on extra payments."^This. One overpayment will mean one two month interest penalty. 5 overpayments will mean 5 two month interest penalties!


As in the interest of the whole loan or simply the interest on the amount of each payment I’m making?
Original Poster
mutley13 h, 7 m ago

from your description, the 2 month penalty is the same in nominal amount …from your description, the 2 month penalty is the same in nominal amount irrespective of the value of the over payment, that is, if you overpaid £100 or £500 in any month, the penalty would be the same in monetary value?


This is what I thought! I queried this when I rang them to make an additional payment and they advised to save up and pay off a larger amount to save on the interest I’d be paying but they couldn’t explain to me how...go figure
jemmarocks6 h, 32 m ago

Hahaha honestly it’s like you’ve already them. I asked prior to agreeing to …Hahaha honestly it’s like you’ve already them. I asked prior to agreeing to it if I could make additional payments at no cost which they confirmed but lo and behold was not the case.The T&C’s state“ You have the right to repay the credit early at any time in full or partially. If you chose to repay the Loan early, either in full or in part then additional interest will be payable. This will be an amount equal to 58 days interest at the Annual Rate of Interest (28 days’ interest only if the original period of the loan is one year), calculated on a daily basis on (a) the amount by which the outstanding balance of the Loan is reduced by the overpayment or (b) where the Loan is repaid early, on the amount of the outstanding balance of the Loan which is repaid ahead of the due date.”


A) I read this as the number of payments will have no effect on the extra interest payable.

B) I read this as the number of payments will have an effect on the extra interest payable

Very ambiguous terms so you need to clarify if a or b would apply
Edited by: "chocci" 30th Jan
I would ask for a forecast of total interest over a 7 month period (5 months + 58 days) to be paid if payments were made as follows:


a) Normal payments + £100 per month for 5 months
b) Normal payments + £500 one off payment in 5 months time.
c) Normal payments + £500 one of payment in 1 months time.

I think the advise given to you is based on option c)
Edited by: "OllieSt" 30th Jan
Original Poster
OllieSt1 h, 14 m ago

I would ask for a forecast of total interest over a 7 month period (5 …I would ask for a forecast of total interest over a 7 month period (5 months + 58 days) to be paid if payments were made as follows:a) Normal payments + £100 per month for 5 monthsb) Normal payments + £500 one off payment in 5 months time.c) Normal payments + £500 one of payment in 1 months time.I think the advise given to you is based on option c)


I asked them this for options a and b you put and they advised they could tell me only if I made a payment.

Will call them again later about it. Such a headache.
jemmarocks11 h, 55 m ago

Hahaha honestly it’s like you’ve already them. I asked prior to agreeing to …Hahaha honestly it’s like you’ve already them. I asked prior to agreeing to it if I could make additional payments at no cost which they confirmed but lo and behold was not the case.The T&C’s state“ You have the right to repay the credit early at any time in full or partially. If you chose to repay the Loan early, either in full or in part then additional interest will be payable. This will be an amount equal to 58 days interest at the Annual Rate of Interest (28 days’ interest only if the original period of the loan is one year), calculated on a daily basis on (a) the amount by which the outstanding balance of the Loan is reduced by the overpayment or (b) where the Loan is repaid early, on the amount of the outstanding balance of the Loan which is repaid ahead of the due date.”


it would appear from the t&c that only (a) applies to you as (b) only refer to repayment of the total outstanding loan early.

every over payment is subject to 58 days of interest on the overpaid amount so in your scenario

Scenario 1 - pay £500 as one over payment; Penalty = 28 days of interest on £500

Scenario 2 - pay £100 of over payments for 5 months;

Penalty =
28 days of interest on £100
28 days of interest on £100
28 days of interest on £100
28 days of interest on £100
28 days of interest on £100

if you assume that the Annual Rate of Interest does not change in the 2 scenarios, then the penalty would be the same as you had guessed in your original post. I think the bank is not correct in their advise to you.

in fact they are telling you porkies as the quicker you make the over payment, that is you choose to make payment under scenario 2, the less you will have to pay interest on the outstanding loan as you are reducing the original loan earlier than waiting until you have saved up the £500.
Original Poster
mutley16 h, 28 m ago

it would appear from the t&c that only (a) applies to you as (b) only …it would appear from the t&c that only (a) applies to you as (b) only refer to repayment of the total outstanding loan early.every over payment is subject to 58 days of interest on the overpaid amount so in your scenarioScenario 1 - pay £500 as one over payment; Penalty = 28 days of interest on £500Scenario 2 - pay £100 of over payments for 5 months; Penalty = 28 days of interest on £10028 days of interest on £10028 days of interest on £10028 days of interest on £10028 days of interest on £100if you assume that the Annual Rate of Interest does not change in the 2 scenarios, then the penalty would be the same as you had guessed in your original post. I think the bank is not correct in their advise to you.in fact they are telling you porkies as the quicker you make the over payment, that is you choose to make payment under scenario 2, the less you will have to pay interest on the outstanding loan as you are reducing the original loan earlier than waiting until you have saved up the £500.


Just got off the phone to them and they’ve confirmed all of this. Thanks so much for the detailed response in actual plain English!!

Fuming that they’ve just lied about it so they can charge me more interest. And also how you can’t make extra loan payments after 6pm conveniently 🙄
jemmarocks2 h, 11 m ago

Just got off the phone to them and they’ve confirmed all of this. Thanks s …Just got off the phone to them and they’ve confirmed all of this. Thanks so much for the detailed response in actual plain English!!Fuming that they’ve just lied about it so they can charge me more interest. And also how you can’t make extra loan payments after 6pm conveniently 🙄


they may not have lied to you intentionally. the person you spoke to on the phone that gave the wrong advice may have misunderstood how the penalty is calculated as it is not a simple calculation and it is all done by computer software.

the software are often written to stop working when the business day ends, which is generally 6pm, so that is probably why they can not process the payments after 6pm
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