Signing up for loans is one thing, paying them off is another. Most people take loans over 12-48 months and run the loan to completion of the agreed term. However what if you suddenly come across a windfall and you wish to pay your loan off, should you and what’s the best way to do this?
Almost certainly you should pay off the loan if you are in a position to do so, no matter how good the loan is you are paying additional interest, which costs!
Paying off a loan is a great relief, but it can be costly. Most loan companies will charge at least one or even two months interest on THE BALANCE owed on the day you pay off your loan. So, lets say you have a £10,000 loan and you have approx £6,000 owing at the time you wish to settle your loan you will find that your loan company will calculate the interest based on the rate of your loan on the £6,000 you wish to pay off.
However, and it’s a big however, if you contact your loan company and tell them you wish to make an overpayment of £5,995 on the Monday, this will leave a balance on your loan of £5.00. Wait for the payment to clear then on the Thursday call your loan company and inform them you wish to pay off your loan. At this stage you will only owe them £5.00 so they will calculate the interest on the £5.00 (balance outstanding) and not the £6,000 which was originally outstanding.
This can make a significant difference on the amount you pay and it’s perfectly legal. The loan companies will not advise you of this, why would they?
So, here you go, a quick and simple way to save in some cases £100’s of pounds of interest and charges.