Bank adding on more payments to term loan

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reddanmm

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Hi all hope you can help me with this. I took out a 4 year personal loan which is due to finish in feb 2012 . I have paid the same payment all along 289 euros on a 11000 euro loan. I recieved a letter from the bank saying that their rates had increased but because they had not increased my payments they now want 511 euro more after the final feb payment. My question is should the bank have informed me of this and gave me the option of increasing the payments. I am awaiting a copy of my terms and conditions and someone from permanent tsb to contact me for the last 2 weeks. Hope someone here can clear it up faster. Thanks in advance
 
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I would have expected a variable rate loan to have a fixed repayment term/schedule but that the repayment amounts would fluctuate based on prevailing interest rates rather than any shortfall due to increasing rates being "back loaded". On the other hand variable rate loans often also allow accelerated regular or lump sum repayments at any stage. Best to check the T&Cs or just query it with the lender.
 
Thanks for the reply Clubman but should the bank have informed me earlier that this was going to happen and given me the chance to vary the payments in line with the rates.
 
A variable rate loan would have fixed payments the whole way through but may end up with an extra payment at the end of the term due to increase in interest....

A fixed rate will have fixed payments and fixed term and that won't change.
 
GuitarDave said:
A variable rate loan would have fixed payments the whole way through but may end up with an extra payment at the end of the term due to increase in interest....
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Not in my own direct (mortgage) and indirect (people I know with personal loans) experience. With such variable rate loans the repayments varied as the rates varied and the term/number of repayments remained fixed.
 
ClubMan said:
Not in my own direct (mortgage) and indirect (people I know with personal loans) experience. With such variable rate loans the repayments varied as the rates varied and the term/number of repayments remained fixed.
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In my own direct (I work in this business) experience a personal variable rate loan would work that way. i.e repayments remain the same but term extend.

A mortgage is different though. Repayments will increase in this case.
 
I would also have expected to see the term extend or contract in response to the change in interest rate over the life of the loan. As personal loans tend to be an order of magnitude smaller in value, payments and duration, changes in interest rates don't have as dramatic effect on the payments as they would on a mortgage. It would also cost them roughly the same to process a payment change each time rates changed on a mortgage as a personal loan, but for less profit. It's far easier to let the interest accumulate and work out any extra payment at the end.

I am not an apologist for the banks, mind! They should have spotted this a year ago and given you a chance to up your payments then, or at least informed you the term would be increasing. Doing so with only a few months left is shoddy communication.

As a general point on variable loans, I would encourage anyone with one to (where cash flow allows it) to overpay. By, say, rounding up to the next €10 / €25 / €50 a month you could knock several months off the term, saving interest and money in the long term. With compound interest effects, the early payments consist of mostly interest, barely touching the capital, so any overpayment would start eating into the capital sooner, reducing future interest charges etc etc.
 
Hi Yakuza you are right it was shoddy communication which was my exact point, i would have had no problem paying extra few bob but i did not get the chance. So anyway i got a letter from them yesterday saying that they were investigating my complaint and would get back to me. Which was better than what my local branch said who told me not to make a scene on the phone as thay would not give me another loan and also that i was availing of free banking.
 
Were your payments made by standing order or direct debit?

If it's the latter then they should vary with any changes to interest rates.

Standing orders however must be manually amended by the Bank. They will not have the resources to change every single one of them every time there's an interest rate change.
 
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