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Help how does this work: extra payment to loan

(9 Posts)
noeuf Sun 04-Sep-16 10:21:29

So, if I pay 385 every month and have 65 months remaining.

An extra payment of 133 saves me £68 interest but doesn't change or reduce the remaining payments.

So what's the point?

InTheDessert Sun 04-Sep-16 10:28:46

It will almost certainly reduce the number of payments you make - although since the interest saved is less than one monthly payment, the last payment will be £ 68 less than normal.

noeuf Sun 04-Sep-16 10:38:07

Oh thank you, I've done a few amounts when I could afford it and one aid it would reduce the term by one month, offers have said varying amounts of interest. What I was planning was to pay the loan amount and then the interest that month, on top?

TaIkinPeace Sun 04-Sep-16 13:30:36

You save the most money by keeping the monthly payment the same and then paying off anything extra you can.
They can only charge you interest on what you owe
so each month's payment will have a higher proportion of capital in it
so the loan will pay off early.

Have a look at my spreadsheets thread to see how it works

noeuf Sun 04-Sep-16 15:38:06

The monthly payment is fixed as its a loan. Do you mean I should just over pay by the same each month?

TaIkinPeace Sun 04-Sep-16 17:00:34

Hi there noeuf
you need to check with them and with your agreement
some do not allow you to overpay
if it does, leave the regular payment running and then throw every extra £100 at it
(I always recommend round numbers as they show up clearly on the loan statement)
then when they do the annual review, see if they can
(a) massively reduce the DD payment (at which point you increase the random extra payments)
(b) reduce the term

noeuf Sun 04-Sep-16 17:08:05

Hi Talkin - thank you! See how much I learned; I'm not spending the extra on 'fun' but debt!

I'm allowed to make overpayments with no penalty and it tells me on the calculator they have (Halifax) how much interest I will save. So far I've saved about £120 in interest and reduced by one payment but I'm not sure what it looks like in real life!

TaIkinPeace Sun 04-Sep-16 17:12:42

Well done on hammering the debt :-)
Download the good old card spreadsheet and play with the amount per month on your own computer
if you can pay double you will clear the loan in a fraction of the time because of the way compound interest works
go for it

noeuf Sun 04-Sep-16 21:28:08

Yay! Thank you I will do that tomorrow night when kids are asleep.
It's very satisfying. I also have a teeny slush fund I managed to put aside to cheer me up to look at. I know I should stick it on debt but it's psychologically good for me. grin

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