Loan early repayment rip off - Northern Rock

lapat

DawnW wrote:

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.

i was of the understanding that this only applies to new loans taken out after may 2007 but i may be wrong i am always according to the misses

parsonsnose

Northern Rock only recently admitted to me that they used the rule of 78. This was banned by the US congress in '92 for loans in excess of 61 months due to the way it penalises people repaying early.

My issue with Northern Rock is that they advertised their loan as one that doesn't penalise early repayment but calculate interest by the rule of 78, banned by the US because of the way it penalises early repayment! Northern Rock offered to reduce the figure by £100 but since that was their final offer I have now written to the Financial Ombudsman Service to see if they agree with me.

I'll post the result here.

DawnW

I don't think they are allowed to use the rule of 78 here in the UK for new loans (taken out after sometime in May this year I think), but are still allowed to apply it to earlier loans. I read somewhere on here that interest on these earlier loans will have to be recalculated after 31 May 2007, which MIGHT mean that any early settlement will need to take this into consideration after this date. I can't vouch for the accuracy of this information, but I am certainly going to look at the settlement figure offered for my loan after next 31 May, to see if it is worth my while paying it off, as opposed to just leaving the money to gain interest. It is currently not worth doing so.

bishbashbosh_3

Interesting to read your post as I am not happy with NR at the moment either. I took a loan out with the great rate advertised as early payment penalty free. When I did so I asked when I could pay the loan off without paying any interest at all. They replied several times (I again checked once I had taken the loan out) over the phone that I could do so before the first repayment installment came out. I then rang them a few days before this date and they first informed me that as it was before the first installment date the settlement figure was the loan amount (0 interest) but when I was transferred to the settlement department to pay I was told I would have to pay nearly £300 interest. They said it was not before the first settlement date but 28 days after the loan was taken out. The farce of it all is that I called them twice after this (still before the first payment date) and the whole thing was repeated! All this despite being told over the phone that I could pay off in full before the 1st repayment date. Surely this constitues a verbal contract and they are in breach of it? Any thoughts?

Astaroth

If you can give enough details to enable them to trace the original call then the FOS would most likely look favourably on a complaint when you have been categorically told something

bishbashbosh_3

Thanks Astaroth.

I have the times of the calls so will first write to NR and then, assuming I am forced to, will go with the FOS.

bishbashbosh_3

Wrote to NR detailing dates and times of phone calls and what was said and heard back from them within 3 days saying they will honour their initial statement of interest free repayment before the 1st repayment date. Just saved myself £400 but annoyed that I had to chase it at all. Very impressed with NR's customer complaints dept though.

jamesd

The Consumer Credit (Early Settlement) Regulations 2004 apply to these loans. There are three effective dates:

• For new loans taken out from 31 May 2005 they apply already.
• For existing loans taken out before 1 June 2005 they do not apply until:
  • 31st May 2007, if the agreement is for a term of 10 years or less
  • 31st May 2010, if the agreement is for a term of more than 10 years

Anyone with a loan for 10 years or less taken out before 31 May 2005 could ask for a settlement figure effective on 1 June 2007, specifying that you want that date so that the Consumer Credit (Early Settlement) Regulations 2004 will apply to the early repayment. Then you can work out whether it's better to pay now or wait.