Paying off loan quicker using our overdraft

[mizu]

So we have a loan - got it 3 years ago and want to pay it off and be rid.

We pay 200 a month at mo and it will take another 4 years - i think. We can't buy a house or save until it is paid off. Just looked at the annual statement and the interest the bank is getting is shocking.

Would it be worth going into overdraft every month - we have a £1000 limit that we do go into at the end of the month by about 100-200, to pay more off. I can pay extra if i want any time but never have. If i pay an extra 200 a month, we will be overdrawn always but surely this will be better as we will be paying much less interest on the overdraft. Hope this makes sense and can anyone advise?

Mizu,

What is the rate of interest on the loan? What is the rate of interest on your overdraft? What is the outstanding amount of your loan? I don't think it's possible to say what the best option is without knowing these things.

To be honest, I would advise you to go and get qualified financial advice, or failing that, go to Citizen's Advice Bureau for some one-on-one help.

I'm not sure but i do know that for every 200 we pay a month, 100 is interest. With the overdraft we can go overdrawn one month and then we will get charged about 80p. The interest is minimal on the overdraft.

Hi,

really sorry OP, I tried to post again over weekend but for some reason my messages did not appear. Was using firefox browser though, so maybe that's it.

What I said was just really to reiterate that I think you need some outside advice. Have you tried the Government-supported National debtline? 0808 8084000. Free advice. Not to be confused with other services with similar names that are in fact just fronts for loan companies.

If your overdraft charges a neglible rate, it is a very unusual bank! My bank, HSBC, charges 19.9 % AER for agreed overdrafts, based on status (e.g., could be more). The amount you're charged may be neglible if you're only ever overdrawn by a few quid, but if that amount increased to your overdraft limit, then you would be paying a lot of interest.

won't you end up paying the interest on teh term of the loan whatever you do? if that is the case it is madness to overpay using an overdraft.

Actually you are less likely to get a mortgage if you are always living in the overdraft than if you have an unsecured loan.

If you have a good credit rating then you may be better off moving your loan to somewhere cheaper.

And is £100 really interest or is it payment protection insurance or similar too?

Most unsecured loans from high street banks have a lower rate than you'd get on an overdraft.

And having an unsecured loan doesn't mean you can't get a mortgage - they just take that into account when calculating how much they'll lend you.

We don't have payment protection on it and i guess that we are paying more interest at the moment than we will do later on as you tend to pay that off first don't you?

I know that we can still get a mortgage with it but we have no savings and will be first time buyers so need to save A LOT of money for a deposit so that will take us a few years. Surely it is better to pay off the loan before saving for a deposit. We nearly bought last year with a gov key worker scheme for teachers and they did take the loan into account but the funding ran out and so we are still renting.