Is it worth to pay off a loan early?

Skyrimaddict

Hi,
Like my question above, is it worth it to pay a loan off early.

I payed a four year 15 k loan off today at month 23/48 yet the bank said my total cost of credit means I only save 311 of the total loan amount.

368*48 =17664.
But paying it in 23 months still cost 17335. Does that sound right???

wench

Sounds like shenanigans to me.
On a normal amortization schedule, you should have paid about 2K interest so far, and have 700 to go

Jim2007

wench wrote: »

Sounds like shenanigans to me.
On a normal amortization schedule, you should have paid about 2K interest so far, and have 700 to go

Only when you completely ignore the commercial reality of a loan contact.

landofthetree

Skyrimaddict wrote: »

Hi,
Like my question above, is it worth it to pay a loan off early.

I payed a four year 15 k loan off today at month 23/48 yet the bank said my total cost of credit means I only save 311 of the total loan amount.

368*48 =17664.
But paying it in 23 months still cost 17335. Does that sound right???

Sometimes there are penalties for paying off a loan early?

coylemj

landofthetree wrote: »

Sometimes there are penalties for paying off a loan early?

Very often, yes. And almost always if the loan was arranged directly by the company which supplied the goods or services. Because the retailer (and often the salesman) will have received commission from the finance house. Which needs to be covered by the interest chargeable over the full term.

If you organise a loan yourself with a bank or credit union at the current variable rate, you can usually pay it off early without penalty.

Skyrimaddict

No penalties as far as I know, bit interest seems to be very front loaded, I just found it very odd.

Even doing a very simple cost of credit calculation says it is very high. I mean 2k in interest in two years is a lot

coylemj

Skyrimaddict wrote: »

No penalties as far as I know, bit interest seems to be very front loaded, I just found it very odd.

Front loading the interest means that you will pay the same amount of interest regardless of whether you do the full term or pay the loan off early.

They don't need to penalise you for paying that loan off early, you'll be doing them a favour if you do because they will get the same amount of money but earlier.

Skyrimaddict

coylemj wrote: »

Front loading the interest means that you will pay the same amount of interest regardless of whether you do the full term or pay the loan off early.

They don't need to penalise you for paying that loan off early, you'll be doing them a favour if you do because they will get the same amount of money but earlier.

So is that the normal with a short loan, five years??

Idbatterim

I’m boi and can repay early without penalty. Given they give you nothing on savings , if you could save money and are in a position to pay it off , could make sense

coylemj

Skyrimaddict wrote: »

So is that the normal with a short loan, five years??

What bank is it? Did you take out the loan as part of some purchase - car, furniture, electrical, home fittings? I just noticed from your first post that you have already paid off the loan.

Based on a principal of 15K and monthly repayments of €368 over 48 months, that means the APR was 8.58%. Assuming a reducing balance with interest added each month just before the payment was applied, after the 23rd payment your balance should have been €8,427. With the 23*368 (€8,464) you already paid, that would make a total of €16,891. Which is €773 less than €17,664 (23*368). That €773 is the amount of interest you should have saved by paying the loan off after month 23.

Edit: ask the bank for a closing statement, that will show the last few transactions, including when interest was applied.

Skyrimaddict

coylemj wrote: »

What bank is it? Did you take out the loan as part of some purchase - car, furniture, electrical, home fittings? I just noticed from your first post that you have already paid off the loan.

Based on a principal of 15K and monthly repayments of €368 over 48 months, that means the APR was 8.58%. Assuming a reducing balance with interest added each month just before the payment was applied, after the 23rd payment your balance should have been €8,427. With the 23*368 (€8,464) you already paid, that would make a total of €16,891. Which is €773 less than €17,664 (23*368). That €773 is the amount of interest you should have saved by paying the loan off after month 23.

Edit: ask the bank for a closing statement, that will show the last few transactions, including when interest was applied.

Thank you.
The first amount of repayment to date is actually bang in, but my balance to close was 9203.6
I don't really know, adding all the figures I got from them I saved 302 in total to pay the loan off 25 months early.

coylemj

Skyrimaddict wrote: »

Thank you.
The first amount of repayment to date is actually bang in, but my balance to close was 9203.6
I don't really know, adding all the figures I got from them I saved 302 in total to pay the loan off 25 months early.

What bank was it? Did you negotiate the loan yourself (i.e. direct with a bank or credit union) or was it 'arranged' by a retailer?

Skyrimaddict

coylemj wrote: »

What bank was it? Did you negotiate the loan yourself (i.e. direct with a bank or credit union) or was it 'arranged' by a retailer?

It was with bank of Ireland