Personal loan - Early repayment question

[Nesty1760]

Hi All

I have a personal loan early repayment question and about interest rebate.

I gather from google, I can pay the loan early, but according to my T&C I can repay without penalty, though do I get refunded the interest on the loan, which I am not using.

I have another 18 months left on my loan balance £4k, but settlement figure on the app is the same as the balance left.

I would of thought, I’d be due some rebate on the interest, I haven’t used on the loan?

I suppose it doesn’t work like that?

[SydneyBridge]

Interest is very front loaded and you pay much more interest at the start of a loan

[cholo]

I think interest is payable monthly isn't it, so you always pay the interest on the totdal loan every month and it reduces in line with the balance?

No loan = no interest.

I don't understand how they could owe you money if it is paid off?

[SoliD]

Odd one, might be worth querying with a call. depending on the length of the loan and the interest rate it might be worth keeping the cash if you can earn more money from the money elsewhere.

[Wills2]

cholo said:

I think interest is payable monthly isn't it, so you always pay the interest on the totdal loan every month and it reduces in line with the balance?

No loan = no interest.

I don't understand how they could owe you money if it is paid off?

I would agree with that, the balance is the principle owed at that point, not principle + interest.

[Jamescrs]

My experience, based on a personal loan from a normal high street bank is that when I request a settlement figure on the loan the figure is typically the number of monthly payments remaining minus an amount for the interest not incurred due to early repayment.

[SydneyBridge]

'Front-loaded interest on personal loans means a higher proportion of early payments goes toward interest rather than reducing the principal balance. Often structured via "flat rates" or the "Rule of 78," this method ensures lenders collect maximum interest upfront, making early payoff less cost-effective for the borrower.

Key Aspects of Front-Loaded Loans:

How it Works: In early months, payments are heavily weighted towards interest. As time passes, more of the payment goes toward the principal.

Rule of 78: A specific method used for fixed-rate, short-term loans where interest is calculated to favor the lender, specifically front-loading interest payments. For example, in a 12-month loan, 12/78 of the total interest is paid in the first month, 11/78 in the second, and so on.

Impact on Early Repayment: If a loan is paid off early, the borrower may pay more interest than they would with a traditional simple interest loan.'

[Nesty1760]

Jamescrs said:

My experience, based on a personal loan from a normal high street bank is that when I request a settlement figure on the loan the figure is typically the number of monthly payments remaining minus an amount for the interest not incurred due to early repayment.

This was my understanding, years ago I had a loan and I am sure the Halifax rebated me the interest that due for the forthcoming payments, that I didn't use.

However, I am willing to accept things may of changed nowadays.

I worked it out that I am paying currently about £56 a month interest, ok this is reducing, as last years interest was slightly higher.

OK so for example from this point on I am looking at approx £800, interest to the end of the loan. However, if I pay it off tomorrow. Surely I can't be charged interest on what I never used?

[Sheepshanks]

Nesty1760 said:

OK so for example from this point on I am looking at approx £800, interest to the end of the loan. However, if I pay it off tomorrow. Surely I can't be charged interest on what I never used?

No you can't. The lender can add a max 58 days of interest.