Which loan to clear first?

I have 2 loans with HSBC and I have enough money to pay off the remaining balance on one of them.

1 - £7,650, 50months remaining, £150/month
2 - £6,800, 24months remaining, £280/month

The early repayment/redemption figure is pretty much the same for both loans, which is around £6,600 each. Repaying 1 would give me the biggest saving while repaying 2 would free up almost twice as much money as 1.

Which loan would you clear?

Its worth pointing out that which ever loan is cleared, the normal loan repayments for it will go towards clearing the other loan quicker

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What are the fees on each for early repayment?

Ooh, a nasty one…

I think I’d still go forthe max saving but once you factor in the extra repayments on the other loan I’m not sure which that would be.

The only fee is an interest charge of 59days. The interest amount isn’t taken from the current balance though, I think its the amount of interest paid on the first repayment which is obviously higher at the start of the loan.

Loan 2 was for a much bigger amount so the fee is higher but don’t have the exact figure, I just got the redemption figures for both loans

Which one attracts more monthly fees/charges? I’d clear that one off first as you’d likely save more in the longer term by getting rid of the higher interest loan.

Its difficult to say because HSBC calculate the interest over the whole term of the loan and add that to the balance on day 1

So if you redeem early are you charged on that interest as well as the ERC? That seems a bit harsh.

I’d clear the bigger monthly amount one and get cracking on the second one with the spare cash if I was you.

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As I understand it, they will remove some of the interest

1 - £7,650 becomes £6,600 if I repay early = £950 saving
2 - £6,800 also becomes £6,600 if I repay early = £200 saving

Ahh I see, in that case I’d probably clear the first loan, it has the longer term and you take more off of the total balance with that one.

Then you’d have a little over 50% of the CMP on the second loan to add and you’d reduce the 24 month time line with it.

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Defitnley clear the loan with the larger repayments first. That money, added to the repayments for the first loan, will see that one replayed in no time as well

Clear the one with the higher APR.

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I agree. Always do the one with the higher APR and where the better saving is.

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It depends - usually pay off the loan that attracts the highest level of interest

However if the loan is cheap use the lump sum to invest and achieve a higher rate of return this is what I do rather than overpay my mortgage

This isn’t true. If that’s your experience then it may just be how your loan balance was displayed. They charge you interest that’s accurate from 59 days (1 month + 28 days) of the day you make payment / give notice you want to close it early.

Any early interest applied to the loan (which isn’t on the actual balance of the loan) won’t be in the final repayment calculation.