Why lenders sometimes over-quote a settlement
On a reducing-balance loan, most of the interest is charged in the early months on the largest outstanding balance. When you settle early you skip the future interest that has not been charged yet, so you save money. Some lenders quote an "early settlement" figure that still includes future interest they were expecting to earn. Others add a legitimate early-settlement fee (typically 1 to 2 percent of the outstanding principal) as compensation for lost interest. The calculator flags the first case as suspicious and treats the second as within a fair band.
How the expected outstanding is computed
The expected outstanding balance at month e is the present value of the remaining (n minus e) monthly payments, discounted at the monthly rate r:
M = P * r * (1+r)^n / ((1+r)^n - 1) B_e = M * (1 - (1+r)^-(n-e)) / r where P = original principal r = monthly rate n = original term in months e = months elapsed M = amortised monthly payment B_e = expected outstanding after e payments
If your lender's quoted settlement S sits within +/- 5% of B_e, the calculator marks it fair. If S exceeds B_e by more than 5%, it is flagged as suspicious and worth challenging in writing.
What to do if the quote is flagged suspicious
- Ask the lender for a written breakdown of principal outstanding, accrued interest to date, and any early-settlement fee
- Compare their principal-outstanding figure to your own repayment schedule
- Reference the paybillke early-settlement guide for the escalation script (branch manager, then customer care, then CBK complaint route)
- Do not pay a disputed figure without a written breakdown
If the loan is a boda or a car, and you are still deciding whether to settle at all, cross-check against the boda finance calculator to see the full-term cost.