Closing out a Loan account

L

Lobby

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Hi,

I've requested this morning a balance on a loan account so that I can pay it off. What I've always wondered about in relation to interest is the following:

The loan was for 7,500 over four years, interest about 6.5% or thereabouts, amounting to 1,957 giving a loan total of 9532. Now we've been paying 193 for the last 27 months so the amount outstanding is 4,400 (roughly).

Now that we're paying it off after 2 and a bit years should the interest not be recalculated as we're no longer holding it for the original four years?

And secondly, they're claiming a "fee" of two months payments for closing it early even though the only mention on the original agreement is for a €75 admin fee (which is fair enough) for early termination.
 
Firstly I doubt that the interest is front loaded on your account and also if it's a fixed rate loan there may well be a penalty for early redemption such as the two payments you mention.
 
The interest appears to have been front loaded, the original form had the interest amount put on it when I signed it, i.e. the 7500 and then the 1957 plus 75 admin fee giving total borrowed of 9532. Taking away 27 payments of 193 arrives at 4,396 (incl 75 euro closing fee) roughly which is what they have asked for to redeem the loan.

I'll ask them for a breakdown of charges and interest.
 
I've repaid a few loans off early in the recent past and have never encountered any surcharges for this option. No administration fee, no 'early redemption fee' or anything like this. If I ever take out a loan I insist that they are aware that i may want to pay it off in a lump sum, and they are still happy to process the loan. In one example, I borrowed 20k only to pay it off about 2 months later. I asked them upfront was it easier for them to give me an overdraft extension instead to reduce the administration, but they said no they would prefer the loan route.
I also have been paying no banking charges for the last five years after I threatened to change banks, and the loan rates I get are still 'graduate discount rates' evn though I left college 10 years ago!
It pays to be with a small branch methinks!
 
This is a flat rate loan - the real rate is almost 13% APR.

The normal method of terminating these type of loans is to give a refund of interest for the remaining months - perhaps deducting 2 months as a penalty. The calculation is sometimes based on the "Sum-of-digits" or "rule of 78ths". If not familiar with those, I'll explain later.

See on interest calculation on loan accounts
 
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