The great 'No redemption penalty' Ripoff?

Daytona_nev

I'm currently looking for a loan at the moment to furnish myself with a new car & motorbike.

Been looking around, Egg seem to have the most flexible i've come across, i.e. no redemption penalty, ability to make adhoc additional payments, payment breaks etc, but their interest rate isn't the best.

I applied for a Northern Rock loan a few weeks ago beause of the low rate, when the documents came through i was totally horrified.

Although they stated there was no redemption penalty, it was possibly the most misleading play on words i've seen & it appears alot of companies do this.

I noted in the small print that they added the interest on at the start of the loan. So no matter when you paid it off, whether you paid it over the period ( 5 years in my case ) or whether you paid it off in full after 6 months, you were still charged 5 years worth of interest.

It seems this 'No redemption penalty' is to be taken with a large pinch of salt, the transparency of bank's advertising on credit obviously hasn't filtered into loans yet. I've looked at numerous loans online since & none of them tell you they do this on the website, It would seem you have to apply & then find the details in the small print when they send the application documents.

Incidentally, does anyone know of any good loans on the market that don't do this. Its difficult to tell as Northern Rock's website mentions nothing about it before you apply. I'm not even sure whether the loans with redemption penalty are going to stitch you up like that too.

Rafter

Worth checking out cahoot for flexible loans too. Although their rate rises after 12 months so you may want to switch then.

I'm not sure your interpretation of the Northern Rock rules is right - it certainly wouldn't be legal to charge interest in this way if you were to repay early. The new consumer credit act introduced a maximum penalty for early repayment.

Good luck.

R.

Daytona_nev

Possibly, i might give them a call, though the documentation seemed pretty clear at the time.

Had an Egg loan before & highly rate them. At the end of the day there's only a few quid a month in it.

Rafter

Agree - I think if Eggs flexible loan rate was at 6.9% rather than 7.9% they would clean up - the charge of nearly £10 a month extra in interest for flexibility on a £5k loan in a bit steep, but £5 say to avoid early settlement fees and being able to draw down funds when you need them seems OK.

R.

Daytona_nev

Except their payment protection is horrendous. I always cover it seperately cos its always a rip-off.

A 12k Egg loan over 7 years

£185 without PP
£263 with PP

£80 a month to protect your loan.

OMG!

Rafter

Never, never, never buy payment protection insurance with a loan.

It will always be cheaper to buy it separately from an insurance broker.

Often the cost will be 25% of that offered with the loan.

R.

magentadreamer

NR must have added those terms in the last two years as I settled my loan with interest taken off two days ago. I'll not be applying for another if this is their new T&C's.

mrcow

Daytona_nev wrote:

Incidentally, does anyone know of any good loans on the market that don't do this.

Sorry if I'm repeating what's already been said but Egg and Cahoot are both pretty flexible. I love my Cahoot Flexible loan as you are in complete control of your repayments and you only pay interest n your outstanding balance. The rate is 6.9% for the first year too.

Incidently, what's your credit score like? Have you considered a credit card offering 0% on purchases? Just an idea and it would be completely flexible (as long as you pay minimum repayments)!

Jolly_2

Daytona_nev,

Your post prompted me to check out the terms of my fixed rate, five year loan with Cahoot, and boy am I angry now. Not with you, obviously.

Anyway to cut a long story short, I found an old email from Cahoot, which to my shame, I didn't read at the time.

Basically it said the terms had changed and that if I wanted to settle my account I would have to pay all the interest calculated to the full term of the loan period. Darn it!

I always had it in mind that I would pay off the loan early, but now it seems there maybe nothing to be gained from doing so.

I can't believe that these people can just change the terms and conditions just like that. If the mortgage lenders did the same thing, we'd really be up the creek!

I'd like to get some 'Consumer Revenge' on Cahoot, but I'm not sure how.

homer_j_3

I think that you will find that all unsecured loans do not have "redemption penalties" but they will use a rule of 78 calculation to work out interest rebate. This could mean that you pay back more than you borrowed.

I know the consumer credit act was reformed last year some time and not sure what has exactly changed but I know that personal loans are not like mortgages re transparency, clear wording etc..

Rafter

Jolly,

What you are suggesting would be illegal. I'm sure the interest refund may be stacked in Cahoots favour (using rule of 78) but they could not charge you all the interest up front.

Certainly for new loans, the consumer credit act prevents any early settlement fees of more than 2 months interest.

Certainly if you pay back a loan very early in its life, the amount you have paid off the amount borrowed may be less than the redemption penalty, so you could end up paying back more than you borrowed.

I think it is a bit early to be planning consumer revenge against cahoot, but to put your mind at rest give them a call and ask them how much you would have to pay to settle the bill broken down between the amount outstanding, interest paid to date and any early settlement penalty.

R.