Be Excellent To Each Other

Lets assume I have lots of loans, which I do, and lets assume they're at different interest rates, which they are.

One loan is on SVR, which is of course at a mega low at the moment, and one is fixed and will be for other 3 years.

Lets say I owe £100,000 at 6.09% fixed for the next 3 years, and that I also owe £10,000 on SVR which will be 5.34% going into January.

The question that I can't work out is, is better to overpay on the larger loan at the higher rate, or the smaller loan at the lower rate? Assuming they are both over the same term, which works out with the cheapest interest over, say, 10 years?

Pay off the higher interest first, obv.

Sorry should clarify better - if I overpay on the smaller loan I'll eventually get rid of it early. Would that not be better? And at the lower interest rate, it'll be a case of 'attacking it while its weakest'. Yeah?

Not always. I had a personal loan from the AA a few years ago at an eye-poppingly good rate, but they downside was they frontloaded all the interest, so there is no incentive to repay early.

It might be. Say your repayments on the two loans are £250 and £75; if you are going to clear the smaller loan then fix the repayments on the bigger loan at £325 a month (hence keeping your monthly spend the same) you might clear both loans faster. You'll need to work it out, as the answer will depend on the exact values of balance and APR.

No, because your higher loan will be gaining more interest at the time.

Your hundred grand loan will, in the first year, get 6 grand worth of interest (give or take).

Your other loan will get 530 quid interest.

It is in your interests (arf) to reduce the big nasty number from the big, nasty loan.

You may feel that overpaying the smaller one would be good in that you get rid of the loan entirely and thusly have 'more' spare cash to then overpay the big loan, but in that time you'll have accrued more interest on teh big number, so it would be a false economy.

HOWEVER, if your variable rate ever went back above 6%, then pay it off toot de sweet!

Don't you have an accountant, CG?

Man that guy was a twat, I've ditched him and am looking for another.

Check the terms of your loan.

Indeed. My logic only works for loans that are not structured in an odd fashion.