Personal finance: Your queries answered

My top-up loan seems to be costing me more and more

Q: I have a loan from Bank of Ireland for a few years now and have topped it up a few times over the years. At the moment it is roughly €17,500.

I’m not one to scrutinise bills/invoices etc but I did notice that in my statements over the last few months, they have added roughly €500 every three months or so. They added €475 in August and €510 in November. My repayments are €80 per week but at this rate it’ll take ages to repay it. How does this work and is there any way of getting out of it?

- Ms MC, Dublin

A:First up, this is a loan arrangement that you sought and that you have topped up on several occasions, so there is really no way that you will be in a position to "get out of it" – unless, of course, you simply do not have the ability to pay.

If that is the case, you will need to approach the bank and seek a modified arrangement, essentially spreading the repayments over a longer period or get the bank to accept repayment of a smaller overall sum.

However, it seems to me that you are more concerned over the never-ending litany of payments rather than any ability to pay.

The alarming payments you notice on your account every quarter are the interest accruing on the loan. With borrowings of €17,500 and an interest rate of around 11 per cent – which seems to be in the ballpark looking at Bank of Ireland’s website – you would be expecting interest charges of roughly that amount.

At €80 a week, you will repay roughly €4,160 a year. Accounting for interest, that means you will be paying just over €2,000 off your loan capital. Naturally, as the outstanding loan reduces, the interest charges will fall – unless interest rates rise, which is unlikely in the short term – and more of your repayment will go to pay down the capital.

As for advice, I strongly suggest you stop topping up your loan. If you can afford to, agree with the bank to increase your monthly payments. It will hurt initially but ultimately will mean you paying less money to the bank over the life of the loan.

Do the new rules apply to existing pensioners?

Q: Regarding new rules for State pensions, is it expected that these will apply only to those new recipients who will receive pensions after September 2012 or also to those already in receipt of a State pension, ie, will the new rules apply to everyone?

Also will the contributory pension still not be means tested.

- Mr GB, Dublin

A:It is important that people on State pensions should not worry about the imposition of new rules announced in the Budget. These rules – which will adjust pensions payable depending on the average number of PRSI contributions – come into force in September 2012 but only for new applicants after that date. Anyone currently on a State pension will not be affected by the new regime.

Even after that date, the eligibility for and level of contributory State pension payable will continue to be determined by the level of PRSI contributions made over a working life and will not be means tested.

On a related issue, it was announced in the Budget that the total number of paid PRSI contributions needed to qualify for widow’s, widower’s or surviving civil partner’s contributory pension would rise from the current 156 to 260 in July next year and 520 a year later.

The Minister for Social Protection Joan Burton has now amended that proposal so that the number of contributions required for new applicants will rise only to 260 and not until December 27th, 2013.

This column is a reader service and is not intended to replace professional advice. No personal correspondence will be entered into.

Please send your queries to:

Dominic Coyle, Q&A,

The Irish Times,

24-28 Tara Street, Dublin 2.

E-mail: dcoyle@ irishtimes.com