Paying a loan off early.

[andyk]

I have a loan which was for a five year term and I am one year into it. It is from a high street bank. I now have the means to pay it off - should I do so? I'm thinking in terms of in the early stages I have been paying off more interest than capital so the settlement figure may not be attractive.

[Loosehead]

Depends on how the loan is structured. The dreaded rule of 78 has now been abolished but only recently so check what the repayment system is. if it's a simple interest charged daily and added monlthly loan, Like Llyods TSB for example then you could probably pay it off without penalty. If you took out the repayment protection though check what penalties may apply there.

[andyk]

Its an unsecured loan and with LloydsTSB actually. There are no penalties or payment protection to worry about. Nevertheless there does seem to be some form of "actuarial" interest calculation, if not exactly rule of 78s.

[panhandle]

In order to avoid paying the settlement figure you could pay the loan off in two or three stages. For instance, if you were paying �100 per month and the balance is �5,000 then make a lump sum payment of, say, �4,000 and then one of �900. Then let the remainder be paid by the final installment.

[indieanna86]

I have a loan with Lloyds TSB for �2000 at the moment. Its over a course of 7 years but I'm almost at the point of saving enough money to pay it off in total, 10 months in. I phoned my bank and they said depending on how much notice I give them the admin cost would be anything up to �160. I've found this much better than paying almost double the loan amount in interest!

[khana]

WIth LloydsTSB, they had 2 computer systems running for a number of years (one TSB and one Lloyds), as such the loans taken out during the period before they decided which computer system to use (the TSB one in the end) meant that interest was calculated differently. TSB loans were front loaded with interest, while Lloyds loans were calculated with daily interest and this was applied monthly along with your repayment. Of course over the full term of the loan, the same amount of interest was charged regardless but for early repayment it differers. Was the loan taken out at an old Lloyds or TSB, that would give you a clue.

[andyk]

The loan is one year old, does that tell you which system they would have used?