Help, need advice on paying loan back!

fusar

Hi, I need some advice please? I took out an Alliance and Leicester personal loan ten months ago, £6000 over 5 years, with a monthly payment of £139 and APR of 6.4%. Within this monthly cost is a payment protection insurance of about £25, which I am now in the process of cancelling.

I have found another loan, which I would like to apply for, in order to pay back Alliance and Leicester what I owe them and reduce my monthly repayments, as the APR is 5.5% rather than the 6.4% that Alliance and Leicester is charging me.

I phoned up for a settlement figure for the £6000 loan and after 10 months of paying £139, equalling £1390, they said that the settlement fee would be £5461.27 – which means the loan has been reduced by less than £600, and I have paid a total of £1390. I understand that the insurance payments amount to £250 of this amount and as I am cancelling the loan I will incur one month’s interest, but I don’t understand where the other £500 I have paid off has gone too?

Can anyone help me please?

grumbler

Read T&C of your loan and your PPI. I guess the missing £500 are somehow related to cancellation of the PPI.

fusar

really? Oh my words! I will have to dig out the t&c - how come they can charge £500 extra for PPI that costs £25 per month, over the five year period the total cost of insurance would be about £1500, so this would be a third in ten months - can they legally do that? Sorry if I sound ignorant, this is the first loan I have taken and already regretting ti

Rafter

fusar,

They use something called 'the rule of 78' to calculate PPI.

Although your 'average' premium is £25 per month, because the loan amount is higher at the beginning of the loan, they charge more premium, and the rate paid goes down over time.

By my calculation this will cost you about £150, so not the whole difference between your two number - so don't quite get it.

Good luck getting the 5.5% loan and expect the hard sell on insurance. You aren't applying for 'moneyback bank' are you? They are part of A&L and will probably refuse you.

If you get stuck stick with a&L at 6.4% but without the insurance, and kick up a fuss if they try to raise your interest charges!

R.

fusar

Thanks Rafter....

I was working as a temp when I was sold the PPI, so I have just read off another thread that this may mean that the policy was missold, as I would not be able to claim if I became unemployed anyway - so I have wage slips to prove this and may write a letter asking for the PPi to be cancelled and to claim my money back from the start.

I was thinking og applying to the lender you mentioned - i will have another shop around now!

Many thanks
Sarah

ktkrunch

I should stick with it as long as you can get the ppi cancelled. The interest rate is reasonable at 6.4%, and you may lose out by cancelling if they invoke penalty charges.

grumbler

Yes, total interest on £6K loan over 5 years is
£1027 for 6.4%APR
£876 for 5.5%APR.

Difference is just about £150 for full 5 years and even smaller for 4 years left. It is still worth thinking about cancelling PPI though.

Astaroth

Firstly there is often an early settlement penalty for paying off a loan early. Secondly when you first start paying the loan off the greater proportion of the money goes towards interest than loan repayment - as the loan goes on it then switches to the other way round.

Personally I am not aware of cancellation fees for PPI but my experience of PPI all comes from the claims handling aspect rather than the policy administration.