Paying off lump sum at start of loan?

[Mercury00]

Just out of curiosity really - I have been looking at £3k loans, which at the cheapest rate I've seen has £194 of interest added to the total. A £5k loan over the same period has only £151 of interest. What's to stop someone from taking out the £5k loan and paying the spare £2k off the loan immediately?

Does anyone have any examples of the kind of penalty this would incur, if any? I assume it'd be greater than the £43 I'd save by doing it.

[2 sMoKiN bArReLs]

That's like buying 40 inch trousers, then belting up tight because you've only got a 32 inch waist

[Ilikebeaver]

We got a loan through first direct.
Applied for £15k.
But hadn't actually chosen/bought the car.

The money was in our account at the moment the loan was accepted.
(To our surprise)

The car we bought was £2k less, so that went straight back into the loan. No problem, no penalty

[bugmenot]

Do keep in mind that taking a larger loan also means that your monthly repayments will be higher.

[Mercury00]

bugmenot said:

Do keep in mind that taking a larger loan also means that your monthly repayments will be higher.

Not if I pay back a lump as soon as I get the loan though, the monthly payment (or term) would be immediately reduced.

[WhisperingWasp]

Mercury00 said:

bugmenot said:

Do keep in mind that taking a larger loan also means that your monthly repayments will be higher.

Not if I pay back a lump as soon as I get the loan though, the monthly payment (or term) would be immediately reduced.

The bit in brackets is correct; your term would reduce rather than your payment. As such, assuming you are comfortable with the repayments for the larger (lower interest) loan, there's nothing wrong with taking a larger amount and paying back the excess you don't need. Just check the terms & conditions for your loan provider of course.

Given you are thinking along these lines it might be worth noting that the best rates will be available on loans of £7,500 and above.