Making Extra Payments on Loan

C

caribee

Guest
Hi

I wonder if any of you have any advice on our situation.

16 months ago my partner and I took out a loan with BOI for 15K. It was for a car and some furniture for our rented home.We pay it weekly - just under 90euro a week. Due to job promotion and pay increases we now find ourselves in the fortunate position of bringing home roughly 600euro a month more than we did 16 months ago. We discount 200 of that for cost of living increases. It was suggested by a family member that we pay of the loan quicker to save interest and get rid of the debt as we are also saving for a home (currently 100 a week into credit union) We don't have any other debts. I rang BOI and was abrubtly told that it was impossible to pay off a loan early unless it was in a lump sum clearing it completely and the best option was to refinance it over a shorter term. We dont really want to do that as we prefer to keep the option open that we pay off extra when we can which will be most weeks but I would like to think if we had a financial crisis we had a bit of leeway. I was thinking about setting up a bill payment and pay off say an extra 50 a week. Is this possible to do and if so is it of any benefit to us. Others have suggested just saving the money and let the loan run its course. What do you guys think is the best option.
(as for the other 200 a month extra we have it's going on having something of a social life for the first time in years!)
 
Was the loan variable rate or fixed rate? Given BOI's response, it sounds like it is a fixed rate loan, which may well have conditions or penalties for early repayment. Variable rate loans (by law) have no such penalties.

If they let you refinance with a variable rate loan with no penalties, then go for it.
 
€90/week = €4,680 p.a, suggests you have a 5-year loan and are therefore repaying a total of about €23K for that €15K. As RainyDay says, it sounds like it's a fixed rate loan. But in any case, ask them
(a) what the outstanding balance is, and what fees you'd incur by clearing this,
(b) what rate you're on, exactly
(c) what replacement loan/refinancing structure they could propose, and on what terms (fixed or variable, etc.)

Compare (b) and (c), compare (c) to the other options available to you (see the Best Buys sticky) — and then see how all that compares to the option of just continuing to pay down the existing loan as per the agreed schedule. You probably don't have the most competitive rate on the market on that loan, but it's not a huge amount and if it costs too much in penalties to redeem it and start afresh, it may not be worth it — especially as rates have now started to rise from the all-time low they were at when you presumably fixed the loan, 16 months ago.
I would like to think if we had a financial crisis we had a bit of leeway.
Click to expand...
If you're tucking €100+/week away in the CU, you're both building up an 'emergency fund' and saving towards a deposit. What rate are you getting from the CU?
 
Thanks for the replies. For the life of me I cannot find our loan agreement so I have asked them to send me out details of the loan, terms/rates etc. I am pretty sure it is a fixed rate so once we know for sure we will consider our options and maybe look at putting the extra money into a savings account for a year or so, off to browse the saving and investments forum for ideas now!
 
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