Repaying Fixed Rate Loan early

Hi, I am just wondering if anyone can give me some advice as to what would be the best course of action for me.

I have a fixed interest rate bank loan (original amount €20k), current amount owed is approx. €11.5k, the interest rate is 6.9%. If I keep paying my current monthly repayments, the loan will be fully paid in 2 years. I also have €15k in savings which are earning interest at 3%. I know that if I pay off my loan early, I will incur a penalty which I have worked out to be in the region of €800. As my 'savings' aren't really generating any money at the moment, would I be better off using that money now to pay off the loan in full? Is there any advantage/disadvantage to paying off the loan now (apart from the penalty!)

It's just frustrating looking at the large loan balance (which seems to be taking forever to clear), and my savings which are barely increasing at all!

Any opinions or advice would be greatly appreciated!!

I'd clear it and cut my losses. 800e is a lot of money but you can then use the money u use to pay the loan to start saving again.

I should be able to work this out properly, but I need to know what your monthly repayment is ?

Danniboo7 said:

I'd clear it and cut my losses. 800e is a lot of money but you can then use the money u use to pay the loan to start saving again.

Click to expand...

Thanks, these are the lines that I was thinking along - that way, there wont really be any major change in my monthly outgoings, just that I'd be saving more, instead of paying off the loan.

huskerdu
My repayments are approx €550 per month. I have calculated the penalty in line with the terms and conditions of the loan agreement. I know that if I pay the loan off early this penalty can't be avoided, and I can live with that. I just don't want to make a decision that will back-fire on me in a few months!

In order to make the decision, you need to do a proper mathematical calculation of the 2 scenarios.

For simplicity, I assumed you have 11.5K of savings

Scenario 1
You keep paying the loan, and keep the 11.5K at 3%.
I calculate that in 2 years you will have 12059 euros in the bank (11.5K, 2 years, 3% - DIRT at 20%)

Scenario 2

You pay off the loan, and then save 550 per month at 3% for 2 years
At the end of 2 years, I calculate that you will have 13500 but you had to pay 800
to your net is 12700. I did this calculation on www.jeacle.ie taking dirt into account.

So, there is not a lot of differenece between the options. Scenario 2 is slightly better,
but only if you do save the 550 every month, but has the disadvantage of you having less savings for the moment, if anything happens that you need them for.

BTW, The Permo are offering 4% on regular savings, which you gain you a little, if it keeps up for 2 years. Also, interest rates may possibly rise in a years time, which you improve the outlook of scenario 2.

I hope this is enough information to help you decide

Thanks Huskerdu! I really appreciate the advice, it has certainly made the decision a little easier.

Thanks again