Loan early repayment rip off - Northern Rock

parsonsnose

Are you attracted to loans with low rates and no early repayment penalties? I was and Northern Rock offered a great rate of 5.7% with no penalty for repaying it early.

I took the loan out over a 10 year period for £14,000, but after 7 months and a number of additional payments later I asked for a settlement figure. The figure of £2,400 they gave me was over £400 more than my calculated figure and when added to all the other payments amounted to an equivalent APR of 15.25%. In my opinion that is a big penalty for early repayments!:mad:

Eight months and £1,900 more payments later I asked for another settlement figure. They came back with the same figure as the one I received last time!
:eek:
And I'm pretty certain this toxic behaviour isn't limited to Northern Rock. So, if you plan on repaying your loans early, check with the loan provider first what the real impact of paying off the loan early will be.

MarkyMarkD

Parsons

If they say in the terms and conditions that there is no penalty, they can't charge you a penalty.

Ask them to justify their repayment figure, if you really want to redeem.

grumbler

In fact Northern Rock's conditions are very obscure IMHO:

Can I make extra payments to my loan?
Yes you can make overpayments at any time. Your monthly payment will not reduce and the total amount of interest paid will remain the same unless you settle your loan in full. As overpayments reduce your outstanding balance, you may be able to pay the loan off earlier than expected as your loan term will reduce in line with any overpayments made. If you do pay off the loan early you may be entitled to a rebate of interest, which is calculated using the formulae prescribed by the Consumer Credit Act 1974.

:huh:

parsonsnose

Exactly! And having dealt with them before with a mortgage I had no reason to mistrust the claim they made elsewhere on their site that there was no penalty for early repayments.

I have made formal complaint but I will also be contacting the FSA and if they sign up to the Banking Code, contact that body too as their advertising is deliberately misleading in my opinion.

Oh, and out of interest, the APR for the latest settlement figure they have provided me with is equivalent to an APR over the loan period of 66.5%!!:mad:

MarkyMarkD

Parsons

I absolutely agree with you. That is not "no penalty for early repayment", which implies to the man in the street that overpayments are credited to the interest bearing balance immediately.

What they are saying, in fact, is that the interest bearing balance doesn't alter from the original contracted profiled balance unless you choose to repay the loan in full. That's very, very harsh on anyone who chooses to make lump sum repayments - and actually derives no financial benefit at all from doing so.

Having said that it seems rotten, I'm not sure whether NR are unique in this - I suspect that it's a system driven thing.

parsonsnose

Latest update is that they have apologised for sending me the wrong settlement figure; it should have been £1,049, which equates to an APR of 23.2%.

Now, where's that FSA address...

Astaroth

the FSA address isn't what you want... you must first exhaust the NR complaint procedure (ie get a final response in writing from them) and then you can complain to the Financial Ombudsman Service http://www.fos.org.uk/

Havent looked at their website to see any adverts about "no penalties" but certainly the T&Cs which Grumbler posted are rather unusual

flowergirls

We have a loan with nationwaide and lombarb. We want to pay them off they both have about 3years left. When i rang up we are only going to save about £200 by paying the nationwide loan off early. There is about £10000 left to pay on it. So now we are not going to pay it off. We are just going to but the money into the account that it comes out of to cover the payment. As i think we will make more money (maybe) by leaving the money in our account.

petermb_2

I have had some experience with dealing with this company, Northern Rock, on behalf of clients. I need to get more information from you and may be in a position to assist you with your loan. I would certainly hope to reduce your redemption figure.

Did you use a broker?
Is the loan secured or unsecured?
When did you take it out?

DawnW

Does it depend on when you took the loans out? I have one taken out in 2004 (for my daughter, who couldn't get this amount of credit at the time, due to student loans, overdrafts etc, she has since paid all back to me, full settlement figure at the time), that comes under the 'rule of 78' (front loaded interest, see thread elsewhere on this forum). Apparently, there are changes due to come into force at the end of May 2007, which, from what I understand, will render this front loading illegal, and force companies to reassess settlement figures (as I understand it, but would be happy to be corrected). I too, want to pay off my loan, but it is quite a big one, and at the moment, I would actually be losing out by doing so, as opposed to leaving the money in a savings account at a good rate. I am waiting to see what happens at the end of May next year, whether it will be worth paying it off in full then, or just carrying on with the instalments.

lapat

flowergirls wrote:

We have a loan with nationwaide and lombarb. We want to pay them off they both have about 3years left. When i rang up we are only going to save about £200 by paying the nationwide loan off early. There is about £10000 left to pay on it. So now we are not going to pay it off. We are just going to but the money into the account that it comes out of to cover the payment. As i think we will make more money (maybe) by leaving the money in our account.

what you need to do contact them and find out how much it would cost you if you paid all but £250 of the loans they can in theory only charge you interest on the remaing balance