Cash loan query

bear1

Hi, I completely forgot to ask my bank today the following question and now have the cash deposited into my account.
I've taken a loan for 8 years which I intend to pay off in less than half that.
Anyway I borrowed 30k and I've also fully insured the sum in case I get fired or sick whatever and the total after 8 years with insurance and interest is close to 51k, 8.59% rate.
Would I still have to pay the full 50k even if I clear the loan say in 3 years or is the amount used in those 3 years calculated and I simply clear that off?
Wife is sure we would have to pay the full 50k and I think she is wrong.
Not able to wrap my head around it.

coylemj

Is the interest rate fixed or variable and what type of institution did you borrow from?

Ignoring the insurance, if you borrowed 30K over 8 years at 8.59% APR, I make out that your monthly repayment would be 428.22 so you'd pay a total of 41,108.

Either that insurance was criminally expensive (100 p.m.) or the rate you were quoted is false and not a true APR. Or possibly a combination of both. I suspect that the insurance policy was 'wrapped up' into the loan in order to maximize the commission from the insurance company to the bank and the official who arranged it/sold it to you. That means that the premiums for the full 8 years were probably added to the money you borrowed, in which case you will end up paying for the insurance cover for the full term even if you pay off the loan early.

bear1

coylemj wrote: »

Is the interest rate fixed or variable and what type of institution did you borrow from?

Ignoring the insurance, if you borrowed 30K over 8 years at 8.59% APR, I make out that your monthly repayment would be 428.22 so you'd pay a total of 41,108.

Either that insurance was criminally expensive (100 p.m.) or the rate you were quoted is false and not a true APR. Or possibly a combination of both. I suspect that the insurance policy was 'wrapped up' into the loan in order to maximize the commission from the insurance company to the bank and the official who arranged it/sold it to you. That means that the premiums for the full 8 years were probably added to the money you borrowed, in which case you will end up paying for the insurance cover for the full term even if you pay off the loan early.

Fixed rate and yes your calculation is bang on. 433 to be exact.
Insurance is 84 a month built into the loan.
So from my understanding, if I pay this is off early I'll still have to pay off the full insurance amount? I.e. the 8/9k?
It just seems unusual to me that a bank will make you pay off the full 8 year amount if you want to clear it in 3.
Borrowed from a bank.

bear1

Just did the sums again and yes you're right the insurance is what adds the extra 9k to the policy.
Funny how at the very start they had showed me on a calculator and printed it out it would cost 41 ish to service the loan. I was so tired when I was signing the agreement yesterday evening I had only noticed it when I got home.
Going to call and have the insurance cancelled.

ANXIOUS

bear1 wrote: »

Just did the sums again and yes you're right the insurance is what adds the extra 9k to the policy.
Funny how at the very start they had showed me on a calculator and printed it out it would cost 41 ish to service the loan. I was so tired when I was signing the agreement yesterday evening I had only noticed it when I got home.
Going to call and have the insurance cancelled.

Before you do this check to see if the bank had it as a requirement that you took this cover out.

Tigger

Wait so op has prepaid the insurance for the whole term and has to pay interest on it ?

phormium

Yes, he is basically borrowing the full insurance premium amount from the bank to pay to the insurance company.

A bank cannot make it a requirement of a loan approval that you take out repayment protection insurance.

In general those type of policies are bad value, great if you have a valid claim but lot of small print so make sure it will cover what you actually want it to cover.

Also is the cover limited to a year's payments or would it pay out until the loan ended? Factor this in too before you decide to cancel. What is the max payout if you had a claim and compare that to the total premium.

bear1

ANXIOUS wrote: »

Before you do this check to see if the bank had it as a requirement that you took this cover out.

No this wasn't a requirement but for my own peace of mind I decided to opt for it but if I knew it would increase the loan so much I wouldn't have.

bear1

phormium wrote: »

Yes, he is basically borrowing the full insurance premium amount from the bank to pay to the insurance company.

A bank cannot make it a requirement of a loan approval that you take out repayment protection insurance.

In general those type of policies are bad value, great if you have a valid claim but lot of small print so make sure it will cover what you actually want it to cover.

Also is the cover limited to a year's payments or would it pay out until the loan ended? Factor this in too before you decide to cancel. What is the max payout if you had a claim and compare that to the total premium.

It works in a way that if I get fired the insurance company will pay 6 months of the loan.
So if we calculate that 84 x 6 is 504 then it actually doesn't make any sense to have it.
I'll go to the bank after work and withdraw from the service.
Thank you all

Trish56

You should have a cooling off period so should have no problem cancelling the Insurance portion. You should also ask the bank that if you clear the balance at any stage is there a penalty.

You should have received all this in writing.

bear1

Trish56 wrote: »

You should have a cooling off period so should have no problem cancelling the Insurance portion. You should also ask the bank that if you clear the balance at any stage is there a penalty.

You should have received all this in writing.

Yes I believe the cooling off period is 2 weeks and if I want to pay off early there is no penalty.
Just wanted to know though if I do pay early do you have to pay the full 8 year amount or a portion?

coylemj

You said the insurance is 84 p.m. and we both agree that the loan by itself will cost c. 430 p.m. to pay off at 8.59% APR.

What they have done is to add the full eight years insurance premium (84*96) to the principal and that has been added to the loan amount. So instead of paying 84 p.m. for the insurance, it's going to cost you 115 p.m. over and above what the basic loan would cost you i.e. paying the insurance in advance is costing you an extra 31 p.m. over 8 years or a total of almost €3,000 for zero benefit to you and lots of commission for the bank and the official who sold you the loan.

coylemj

bear1 wrote: »

Yes I believe the cooling off period is 2 weeks and if I want to pay off early there is no penalty.
Just wanted to know though if I do pay early do you have to pay the full 8 year amount or a portion?

Technically there may be 'no penalty' but the fact that the insurance policy has been added to the loan principal means that if you take out that loan on Oct 1st next, the outstanding balance will not go below 30,000 until January 2020.

Your starter balance on Oct 1st will be 38,064 with the insurance included. Get rid of the insurance and if you want that type of coverage, shop around for the best deal and take out a separate policy which you pay monthly and which you can stop paying into at any time.

ANXIOUS

phormium wrote: »

Yes, he is basically borrowing the full insurance premium amount from the bank to pay to the insurance company.

A bank cannot make it a requirement of a loan approval that you take out repayment protection insurance.

In general those type of policies are bad value, great if you have a valid claim but lot of small print so make sure it will cover what you actually want it to cover.

Also is the cover limited to a year's payments or would it pay out until the loan ended? Factor this in too before you decide to cancel. What is the max payout if you had a claim and compare that to the total premium.

Banks can most certainly make it a condition of a loan that you have in place. They can't make it a condition that you take out the cover with them.

coylemj

bear1 wrote: »

It works in a way that if I get fired the insurance company will pay 6 months of the loan.
So if we calculate that 84 x 6 is 504 then it actually doesn't make any sense to have it.

No, they will pay 6 months of your 545 p.m. loan repayment.

But it still doesn't make sense.....

what you have signed up to is a policy costing €11,050 over 8 years which in the worst case scenario will pay a max. benefit of €3,270.

bear1

Thanks to all you've helped me out a lot and saved me a fortune. I'll update once I get it cancelled from the contract. Loan is only since yesterday evening so thank god for that.

phormium

ANXIOUS wrote: »

Banks can most certainly make it a condition of a loan that you have in place. They can't make it a condition that you take out the cover with them.

They can't. Repayment protection cannot be a condition of getting the loan. They might like you to have it but they cannot make it an actual condition.

bear1

So good news, called the bank as I got out of work late and they said that I can cancel the insurance at any time but it's great to have it you should keep it blah blah blah.
So told them nope I'm fine thanks so I've an appointment to go in tomorrow and remove the insurance. Can only do this via the branch.
Recalcualting everything and the cost of the entire loan will drop by roughly 9k now which is a very big saving.
So thank Christ for one that the wife checked out the documents when we got home and thank you all for doing the sums for me this morning.
You've all helped us save a lot of money of the next few years.
Oh and just to show, the loan itself remains the same at 433 per month but the clever bastard then take 84 right after that so I'd have been paying in reality 517 per month.
Amazing really how when we first went to inquire about the repayments the woman gave us the formula to show the full amount to pay back with the insurance.
But the moment we're approved handed us the amount of 433 and said the insurance is included.
Chancing her arm.

bear1

Just to close this off, bank cancelled the insurance and all now cleared up.
Delighted with the result.