AA loans - redemption fee?

Sghughes42_2

Does anyone know if the AA charge a redemption fee on their loans? They appear to have the best rate available but their website and the T&Cs do not mention any charges for repaying early and when I emailed them I was told that they do not reply to emails and I would have to call them on an 0870 number. I tried pointing out that they legally had to supply this information (I assume they do anyway!) but got no further.

Martinslovechild

The AA appear to have the best rate available

According to their website, the representative rate bands are as follows: £1,000 to £2,999 – 14.9% APR, £3,000 to £4,999 – 10.9% APR, £5,000 to £25,000 – 5.8% APR.

It looks like they're only really competitive if you require £5K+. It's also interesting to note that rates range from 5.8% APR to 19.9% APR .

Like you, I can't find any info on their website regarding early redemption. Interestingly, they're not mentioned either in yesterday's Sunday Times Best Buy table (supplied by Moneyfacts) but the top 2 which are listed there do have a redemption penalty of 2 months interest (Abbey and Natwest).

Sghughes42_2

True, I should have said that for the amount I'm after they are cheapest. It would appear that Northern Rock (are / were) the cheapest I've seen listed that do not apply penalties but the list wasn't complete.

I'd prefer one I can repay early if necessary, partly for if I save up enough to pay off early and partly as I've tended to move loans and 'renew' loans to pay for extra things and still get the cheaper rates.

(i.e. I currently have a loan of about £3k with IF. I need £2.5k for home improvements but I can get better rates at £5k+ so am intending to get a £5.5k loan and pay off the IF one)

Martinslovechild

Also consider the Cahoot Flexible Loan which, with an average APR of 6.9%, is higher than the other loans you mention BUT you can increase the amount you borrow (up to your credit limit), or pay it off entirely at any time, penalty free.

This also means that it's great for stoozing - for example, let's assume that you've got a £10K loan credit limit and you withdraw the lot to buy a car.  You could then apply for a credit card which offers a 0% Balance Transfer facility (e.g. Egg); let's assume they offer you a £5K limit.  You can then Balance Transfer the entire Egg credit limit into the loan account (because Egg BT's can pay off overdrafts & loans aswell as credit cards), thereby reducing your flexi loan to £5K.  At this point, you would obviously need to make the minimum payments on the Egg card aswell as the monthly payment to the Cahoot account. This neat little trick reduces the effective pay rate of the overall loan to just 3.45% for the period of the 0% deal - much lower than any loan on the market.

A month before the expiry of the Egg 0% deal, apply for another 0% card and BT the Egg balance to there to continue.

Of course, you could do the whole amount on 0% credit cards which negates the need for a loan at all .  You'll need to check out https://www.stoozing.com for further info.

Good luck.

Sghughes42_2

Just a quick update: The AA have responded and yes, they do have a redemption fee, it being the usual 2 months interest.

In response to Martin's Love Child, for some reason Cahoot don't like me. They initially rejected my application and on sorting out my credit history (they'd managed to link me to my sister and her ex boyfriend even though neither of them had lived with me for years) they did accept me but gave me a very high interest offer.

This being despite me having a mortgage with the Abbey and them offering me something like 4.5x salary at the time of the first application. I also believe the limit they have offered me is only about £1500...

The idea of using Egg would be handy if I could find any awy to work out when your anniversary month is! (I already have an Egg card) I *think* it is February but don't know how to check and I've had it long enough that I can't find the original paperwork...

Martinslovechild

The idea of using Egg would be handy if I could find any awy to work out when your anniversary month is! (I already have an Egg card) I *think* it is February but don't know how to check and I've had it long enough that I can't find the original paperwork...

Sure.  Simply send them a 'secure message' through their website.  To do this, log into your Egg account, then from near the bottom of the menu on the left hand side of the screen, select 'Secure Messaging'.  Now click 'Write Message' and ask them when your Anniversary Month is.

Note that 0% BT's on this deal are 0% for 5 months BUT you must do them during the Anniversary month - even a day later and you'll be on the normal rate of interest.

Also, by 5 months, if your Anniversary commences on 01/02/05, then it ends on 30/06/05 which means that to avoid paying any interest, you'll need to make arrangements to pay the money back on or approx 24/06/05. Alternatively, apply for another 0% card towards the end of May so that the amount on your Egg card can be transferred across - this will keep the interest at bay for much longer...

Sghughes42_2

Just realised I'm actually slightly missing the point of the redemption fees here. I'm avoiding them as I'm thinking two months repayments but it's not is it, it's two months interest.

The question then becomes, how do they define two months interest and what is a typical amount for that?

By define it, I mean is it two months based on the initial loan value, twice what the next interest payment would be, or what you would be charged in interest for the next two months assuming you carried on with your repayments? I'm assuming that the amount of interest will go down as the loan amount goes down so it could well be that the redemption fee would be less than the extra I'd pay on a higher rate anyway.

Martinslovechild

It really depends if the loan uses the Rule of 78 or not. Loans that use the Rule of 78 are front-loaded with interest which means that 2 months interest payments will obviously be higher in the earlier years of the loan (which is when the majority of people who cancel loans actually cancel them).

If the loan uses a normal calculation and we assume that you borrow £10,000 and cancel after 12 months, then the amount of interest in month 13 would be £39.75 (based on a 5 year loan with regular repayments of £192.40) and month 14 would be £39.01; therefore, you could expect to pay £80.00 interest approximately.

If you have Microsoft Excel on your PC, then run the Loan Amortization spreadsheet from within the Spreadsheet Templates (File - New - New from Template - Loan Amortization) and enter the figures for your particular case.

Sghughes42_2

I don't appear to have that template on my Excel. However, I got sample quotes for the amount you quoted and TheAA on 5.8% were only £72 cheaper overall than Northern Rock on 6.5% so the redemption fee would be more than I'd save on the cheaper rate.

The only question then I guess is 'how likely am I to move the loan'. Based on my previous history and the fact I'm likely to need to borrow more money before this is paid off in full (the car would be 10 years old in 5 years so would most likely want changing before then for example) I think and early repayment is quite likely. Also, on the amount I'm borrowing, the different in overall cost is only £43 which I think it worth paying for the option of moving. Actually, if I reduce the term to 48 months then the difference becomes £17 and the repayments are only about £25 a month more.

Martinslovechild

SG,

The Loan Amortization template is available in Excel 2002 and 2003 versions but also available by download from here for versions Excel 97 and later.

Good luck.