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Thread: Loan overpayment help

  1. #1

    Loan overpayment help

    My mum has an outstanding HSBC loan of 5590.67. At present, her monthly repayments are 310.84 and there are 18 payments remaining.

    She currently has the following offers on credit cards:
    • Barclaycard 0% money transfer of 2,250 until May 2019 with 2.9% fee
    • Tesco Bank 0% money transfer of 1,045 until January 2019 with no fee

    I want to know whether it is worthwhile using both of these offers to overpay her loan, however the fact that HSBC front load their interest and do not allow monthly repayments to be reduced if you have overpaid, I am not sure whether it is worth doing. See below for what I have:

    • Barclaycard balance after MT + fee = 2,315.25. Minimum payment = 2.25%. Monthly repayment to clear balance before promotional period ends = 154.35.
    • Tesco Bank balance after MT + no fee = 1,045. Minimum payment = 1%. Monthly repayment to clear balance before promotional period ends = 87.08.

  2. #2
    With the money transfers, the loan balance would be brought down to 2,295.67. With the 310.84 repayment each month, there would be 7 payments left.

    I would really appreciate someone advising whether it is worth doing this.

  3. #3
    HSBC don't front load their interest. No one does.

    If she can borrow at a lower rate than her existing loan, accounting for fees, it is worth it, as long as she can manage all payments.

  4. #4
    What zx81 said, the loan interest is not front loaded. Your mum is making X number of 310.84 to repay the loan. At the start of the loan most of that 310.84 is going towards interest with a small amount repaying the capital so that the following month there is less capital outstanding and therefore less interest so more of the payment goes to wards the capital. It works in exactly the same way as a repayment mortgage.

  5. #5
    Without knowing what rate your mum is paying on the HSBC it is impossible to say if she will actually save any money doing this. My gut feeling is that there will be very little in it.

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