Accepted by Tesco - should I try others?

kamb1ng

Hi everyone,

We want to borrow £8k for 3 years for a used car to accommodate the expanding family.

Have been accepted by Tesco with 12.3% APR, which I think is rather high. I received the initial papers today and they also have a very strict early repayment policy. I.e. if we settle after 3/4 of the term have passed, we'll end up paying more than the total payable amount!

I just tried Zopa since they only do an enquiry check, but was declined.

So two questions for you:
1. Is it a good idea to try my bank (HSBC) or any other companies to beat the Tesco rate?

2. If I don't succeed in finding an alternative, will the additional credit checks make Tesco change their mind?

Many thanks in advance.

paulmcerlean

Definitely try your bank - if tesco are willing to lend to you, your bank should.

LDJ2009

Hi, did you try the listings option on Zopa rather than a market loan ?

poet123

When we log onto internet banking we are offered a loan rate of 7.9% that is with LTSB.

kamb1ng

LDJ2009 wrote: »

Hi, did you try the listings option on Zopa rather than a market loan ?

I tried the market loan, not the listings.

kamb1ng

paulmcerlean wrote: »

Definitely try your bank - if tesco are willing to lend to you, your bank should.

Just tried HSBC while logged in through online banking. While the rates start from 8.7%, their indication on my application is showing 15.9%. I guess I'll have to stick with Tesco.

Thanks everyone.

firesidemaid

can you not get a new family car for that amount, and choose a car with lower emissions so that tax will be low and you will have no mot/servicing bills for 3 years+. maybe even a free insurance/aa deal etc too? they may be trying to offload pre-reg cars as new ones will be out in less than a month.

jamesd

kamb1ng wrote: »

We want to borrow £8k for 3 years for a used car to accommodate the expanding family.

Have you considered using a credit card like Virgin that offers 0% for 16 months after a 4% fee and lets you do a balance transfer from your current account, putting the money into the current account? One or two cards of this sort may be sufficient to get the loan you're after more cheaply than Tesco. If any money is still to be repaid after the 0% period ends you can use another card and balance transfer to it at 0%.

kamb1ng wrote: »

Have been accepted by Tesco with 12.3% APR, which I think is rather high. I received the initial papers today and they also have a very strict early repayment policy. I.e. if we settle after 3/4 of the term have passed, we'll end up paying more than the total payable amount!

That looks like a mistake because it's not possible for this to be the case if a loan follows the legal requirements of the early settlement regulations. The maximum that a lender can charge is two additional months of interest beyond the date of early settlement. For the rest of the term prior to that it's calculated like a mortgage interest calculation.

kamb1ng

jamesd wrote: »

That looks like a mistake because it's not possible for this to be the case if a loan follows the legal requirements of the early settlement regulations. The maximum that a lender can charge is two additional months of interest beyond the date of early settlement. For the rest of the term prior to that it's calculated like a mortgage interest calculation.

James, thanks for that. Very interesting.

This is what is quoted in the letter I received from Tesco:
Monthly payment for 36 months: £264.42, making total payable to £9,519.12.
Right to settle early, for example, when a quarter of the term had passed: £6,633.18. When half: £4,689.91. When three quarters: £2,572.22.

So if I settle after three quarters of the term has passed, doesn't that mean I end up paying (27 * £264.42) + £2,572.22 = £9,711.56?

jamesd

kamb1ng, interesting, I can at least see how Tesco gets those numbers. It looks as though they are assuming that you give notice that you want an early settlement on the day of the payment. Then they are allowed to have 58 days of interest and one more monthly payment to take from you, increasing the loan term by almost two months. So the 1/4 way number isn't paying it off at 9 months (8 payments plus settle) but asking to settle after the ninth month (9 payments) then the tenth payment and 58 days of interest still to make before it's settled. The interest and extra month's payment is what makes the total higher than the total payable, which doesn't have the extra month in it.

If they were to do it with no penalty at all after you paid it all off on the day of the ninth payment you'd pay £6252.82 to settle, using this calculation in the regulations:

Interest rate 12.3
Monthly interest 1.009713849
Borrow 8000
monthly payment 264.42
Settlement after paying for 9 months
9 8727.20 balance
8 285.68 less these allowances for the monthly payments
7 282.93
6 280.21
5 277.51
4 274.84
3 272.20
2 269.58
1 266.99
0 264.42
sum: 2474.37 outstanding 8727.20 - 2474.37 = £6252.82

Instead they seem to be choosing to calculate with you paying it off 58 days after the ninth payment, this calculation:

Settlement after paying for 9 months
9 8727.20 balance
8 285.68 less these allowances for the monthly payments
7 282.93
6 280.21
5 277.51
4 274.84
3 272.20
2 269.58
1 266.99
0 264.42
sum: 2474.37 outstanding 8727.20 - 2474.37 = £6252.82
+ 58 days interest 6370.78
+ 10th payment 6635.20

And that's close enough to their number of £6633.18 for me to think that odd days differences when payments are made explain the difference.

For 3/4 it looks like £2267.58 after the 28th installment (for 27th settlement request) + 58 days interest and the 28th payment making a total of £2574.78 in settlement number. Close enough to their calculation.

A total of £9714.12 to pay if you give early settlement notice on the date of the 27th payment then they take the settlement payment 58 days later, along with the 28th payment on its due date. This comes out higher than the total payable because of the extra month's payment included in this calculation.