Settlement Figure on Loan

navdhanjal

Hi Guys,

I bought a car on finance about a year and a half ago, and I want to settle the total now, but am having issues working out what my settlement figure should be.

Obviously I approached Creation and they have quoted me a figure which seems very high, and only £400 shy of what I owe them at the moment anyway, even though I have 16 months left on the loan. Under advisement from their CS team, I wrote them an e-mail explaining things:

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I am writing to you to discuss the settlement figure that I was quoted today.

After speaking at length with some people in your customer services department, they could not explain to me why my settlement figure currently stands at: £3916.44.

I’ve looked at my figures for the loan – with the amount borrowed at £7503.48, at an interest rate of 19.8%.

This would mean over the life of the loan, I would be paying £2507.84.

After looking at the figures for quite awhile now, I’m looking at a settlement figure closer to £3200, and not at £3900. The amount I owe now is only £4311.32. Effectively, what you are telling me, is that by paying off my loan 16 months early, I’m only saving just under £400 in interest payments. This cannot be the correct figure.

Therefore I would request that you send me a breakdown of how this figure was calculated.

Regards

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To which they replied:

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Our early settlement figures are calculated using a mathematical equation called the Actuarial Method in accordance with the Consumer Credit (early settlement) regulations 2004, and are valid for 28 days from request. As an actuarial equation this is provided as an item of software and integrated into our system, it is impossible for any of our agents to calculate this figure. Therefore the figure given as settlement on 03 April 2009 is accurate and will be valid up to and including 01 May 2009. If you need any assistance we would guide you to your local Trading Standards office.

Information about the operation of the Consumer Credit Act 1974 and Regulations made under it is available from the Office of Fair Trading, Field House, Bream’s Buildings, London EC4A 1PR.

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Now...they haven't given me a breakdown of anything - do they need to? Should I pester them some more for it? Just looking for advice on where to go from here...if the figure they gave me is correct, its not a problem but it would at least be good to know how they worked it out.

Thanks for your time guys

Rafter

navdhanjal,

Their sums look about right to be honest.

At the start of your loan, when the balance is highest, you pay more interest.

Towards the end of the loan when the balance is less, you pay less interest and more of your monthly payment goes to pay off the loan.

So in month 1, your interest bill would have been £115 roughly, but in the last month only £4.

So after 20 payments, you have paid around £1800 in interest and paid about £5,400 in payments leaving a balance of £3840.

There is usually a 1 month penalty for early settlement which would take it up to their number.


Their letter is bizarre and saying they cannot give you the calculation is mad, but it does look like they are right - sorry.

R.

Rafter

PS - Send me a private message if you want how I got to the numbers and I can e-mail it to you!

Robert_Sterling_3

I have been casting my eye over your figures.
I assume the loan is over three years
The interest rate is 19.8%
You do not say what the Monthly Payment is but it must be close to £270 per month. I make it £270.03

Below is a table which shows the outstanding capital balance at the begining of each month.

£7,503.48
£7,345.27
£7,184.65
£7,021.60
£6,856.08
£6,688.04
£6,517.46
£6,344.29
£6,168.49
£5,990.03
£5,808.85
£5,624.93
£5,438.23
£5,248.68
£5,056.27
£4,860.93
£4,662.64
£4,461.33
£4,256.97
£4,049.51
£3,838.91
£3,625.11
£3,408.06
£3,187.73
£2,964.05
£2,736.98
£2,506.47
£2,272.46
£2,034.89
£1,793.73
£1,548.91
£1,300.37
£1,048.07
£791.94
£531.92
£267.96
*************

The next table shows the amount of interest due each month.
It then shows the total interest.

£113.82
£111.42
£108.98
£106.51
£104.00
£101.45
£98.86
£96.23
£93.57
£90.86
£88.11
£85.32
£82.49
£79.61
£76.70
£73.73
£70.72
£67.67
£64.57
£61.42
£58.23
£54.99
£51.69
£48.35
£44.96
£41.52
£38.02
£34.47
£30.8
£27.21
£23.49
£19.72
£15.90
£12.01
£8.07
£4.06

£2,289.59
**********

After 20 months the ouitstanding capital balance is £3,838.91
However the lender may charge some extra interest.
Thus £3916.44 is likely to conform to the Consumer Credit Act 1974 as amended.