Advice on repaying Welcome Finance loan back early to be debt free

craigroberts

Sorry I am reposting this in this section of the forums, because I think there will be someone who has experienced this on the debt free section

Hi there,

I would be really grateful if someone could give me a bit of advice on repaying my Welcome Finance secured loan back early?

I took out a loan in December 2008 and now I just want to get rid of it. It is causing problems because it is a second charge on my home and well I was undergoing some personal problems at the end of 2008 and took this out without thinking properly. Also it would serve for me to get rid of it, because I want to transfer my mortgage to a better rate and having the second charge, requires a deed of postponement and all sorts of hassles.

So I have asked for an early settlement figure from them. They say I should receive this within the next 5 working days.

Now I was wondering if anyone had any experience with this? I have looked at the early repayment figures for quarter term, half term, three quarters of the term (15 years is my term - like I said i've been a numpty!) and they seem pretty steep. However, my question is - does anyone know what the situation is if you pay it back within the first year?

I read Martin's article on this and he states:

"Redemption penalties: These are fines if you try and pay off the loan early. This used to be a major problem as these penalties are stringent, and for many with existing secured loans sadly they're still in force.

• Yet for new loans of less than £25k, redemption penalties are legally restricted to only two months' worth of interest. Larger amounts have no maximum limit however, and penalties can be much heftier. Many loans have settlement figures of up to 6 months interest for the first few years, then on a sliding scale after this.
• Rule of 78: For loans of under £25,000 a potential hidden penalty used to come from ‘rule of 78' interest calculations, a complicated formula which artificially allocates repayments towards interest not capital, leaving more left to repay than you think. Repay very soon after borrowing and it can mean paying back more than you borrowed. Find out more: Rule of 78.
  Thankfully people taking out loans these days don't have to worry as the government has banned rule of 78 charges, however most people with loans taken out before that will be caught by this."

Am just trying to think will I end up paying something ridiculous on the £13,500 taken out or will it be in accordance with what Martin says above?

Sorry for the silly questions - just am worried about this now and want to be armed with as much knowledge as possible before I get their settlement figure. Here is the breakdown of details:

Borrowed £13,500 over 15 years at 25.34% APR (yes I know) - monthly repayment of £291.33

The acceptance fee and broker fee was a total of £1315.

The form says:

"If you exercise your right to settle this agreement early you may expect to pay, if you settle:

After 1/4 - £13,252.16
After 1/2 - £11,909.25
After 3/4 0 £8,476.64"

Hope you can help with that info in my mind.

Tonnes of thanks for anyone who can shed light on this or has past experience of such a predicament.