Does overpayments on a loan reduce the term or interest?

[danny0001uk1]

Hi All,

I'm looking at the possibility of changing my car and would need a loan to part fund this.

I've been looking at credit union loans as they calculate interest on a daily basis and allow frequent overpayments and there are no early redemption penalties.

If I made overpayments would the loan be over fewer months of would they just reduce monthly payments?

Also does anyone have any credit union experience?

Many Thanks

Danny

[Kudos]

it all depends on the institution. Some allow either the duration or the monthly amount.

[Sarnie]

Most will reduce the term as it's simpler for them to keep the direct debit the same.

Most will allow you reduce the payment if you phone them up and tell them this is what you want to happen.

[jeff m2]

Technically the term and the interest would reduce.
The overpayment would be applied to prin therefore int would be lower as it is calc on outstanding bal.
You would normally be required to always make (at least) your min payment and there the term would shorten. You will probably receive a last payment invoice as it will be for a different amount to the orig equal monthly payment.