Should I lose my lump sum to pay off my loan?

Q We have the cash to pay off our loan of ?8,000 early. We have had the loan since last August, and currently repay ?228 a month. Should we pay it in one go or should we make more than one payment? We want to pay this off but are not sure what is best.

TD

A It is important to check the small print of your loan to make sure that you won't pay a large redemption penalty if you decide to clear it early. Some loans charge high rates if you want to cancel them, and you may find that you fall into this category because you have had your loan for less than 12 months.

If you can clear the debt without penalty, it is a good option to take, since the interest you pay on a loan is far higher than the rate you would get even in a best-buy savings account. If you can't clear it early, there may be an option for you to overpay, in order to settle the debt before the end of the term - again you need to check with the loan company.

If you find you can't pay it off early, but you want to find a good home for your money, you have a couple of options. If you have a mortgage, speak to your building society or bank to check if you can pay off a lump sum. Alternatively, use the spare cash to clear credit card debts and put the remainder into a high interest savings account.