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Repay Loan early- interest rates?

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  • 08-02-2006 2:34pm
    #1
    galah
    Registered Users Posts: 2,215 ✭✭✭


    Hi all,
    just a quick question (it'll take ages for AIB to get back to me...)
    I have a loan with AIB, and I have the option to pay back more than the monthly rate without penalties.

    Say the loan is for 5000 Euro over 3 years, and interest on that is 500 Euro (these figures are made up, and I'm really no good with figures!). If I repay more than the monthly sum (say i pay off 2000 Euro in one go) - will the interest over the three years go down? Or is it still the same?
    Qustion is: does it make sense to pay the loan off earlier or should I just pay the installments until the end of the loan?

    It just all doesn't make sense to me...Could a good-hearted person explain to me how it works?

    Cheers!
    galah


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    #2
    gerrycollins
    Registered Users Posts: 1,799 ✭✭✭gerrycollins


    if you organised it to be a variable loan then the intrest is calculated on a daily basis and yes will go down as it is calculated on the principal amount.
    if the loan was a fixed rate well then tough luck


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    #3
    galah
    Registered Users Posts: 2,215 ✭✭✭galah


    thanks for your answer! It's a variable rate loan - so by paying it off earlier, I can "save" money, right?


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    #4
    Kinetic^
    Closed Accounts Posts: 13,249 ✭✭✭✭Kinetic^


    galah wrote:
    thanks for your answer! It's a variable rate loan - so by paying it off earlier, I can "save" money, right?

    Effectively yes, you'll have less money going out if you were to pay off now, then you would if you payed it off over the next few years.

    You can also factor in the time value of money etc. but 3 years isn't along time.

    If your the type of person that doesn't like to in somebody's pocket then pay it off as it will only cause you stress.


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    #5
    galah
    Registered Users Posts: 2,215 ✭✭✭galah


    excellent, thanks for the clarification!

    Another question more or less related to this: would it make sense to take up a loan with a Credit union (lower rates) to pay off the whole AIB loan now, or would it not make a difference?

    When it comes to finances, I'm a real idiot (just in case that wasn't clear...;-))


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    #6
    Kinetic^
    Closed Accounts Posts: 13,249 ✭✭✭✭Kinetic^


    galah wrote:
    excellent, thanks for the clarification!

    Another question more or less related to this: would it make sense to take up a loan with a Credit union (lower rates) to pay off the whole AIB loan now, or would it not make a difference?

    When it comes to finances, I'm a real idiot (just in case that wasn't clear...;-))

    If the credit union have lower rates then it might be an option.

    If you're saying that you're going to pay it off early then why go to the hassle.


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    #7
    RainyDay
    Closed Accounts Posts: 6,925 ✭✭✭RainyDay


    galah wrote:
    Another question more or less related to this: would it make sense to take up a loan with a Credit union (lower rates) to pay off the whole AIB loan now, or would it not make a difference?
    Don't assume that CU's are always lower rates than the banks. The banks rates are much more competitive than they were a few years ago. The CU APR rates may 'hide' the cost of having to keep matching funds on deposit with the CU.
    galah wrote:
    When it comes to finances, I'm a real idiot (just in case that wasn't clear...;-))
    I disagree - by even thinking about it enough to ask the question, you're proving that you're not an idiot - especially compared to many who don't think/care about how much debt they are in or how much interest they are paying. Many people survive from week to week only thinking about how much they are paying out that week. By taking the long term view, you're being very smart & responsible. Keep asking the questions....


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