Rule of 78

jimladin

Hello,

I've fully researched the rule of 78 which applies to a car loan that I have. However, i have just read that, with the abolishment of the rule of 78, existing loans will be subject to new calculation methods in 2007.

I took the loan out in Feb 2005 for £25,000 over five years (i kick myself for taking it out for such a long time, but justified it because the car retains its value very well).

What i would like to know is how this rule change will affect this loan. Should I decide to sell the car (or pay off the loan) in 2007, will the rule of 78 have no bearing on this loan as the rules have changed? Or will the early interest loading still apply, and therefore, i won't really benefit much from the change?

Sorry for being long-winded.

Thanks for any help in advance.

Mr._Bish

Unfortunately as far as I am aware the new legislation only effects agreements written after May 2006.

Sorry I can't be of more help.

jimladin

I feared that might be the answer.

billywhizz

Assuming you borrwed exactly £25,000, not any more at all.

All the documents we use for Car Finance were rewritten for March 2005, when the new rules kicked in on 31/5/05.

As far as I am aware it only applied to agreements written after that date.

Scrub That

"Early Settlement The Consumer Credit (Early Settlement) Regulation 2004
This replaces the Consumer Credit (Rebate on Early Settlement) Regulations 1983 with an ‘actuarial’ approach to early settlement and creates a limit on charges that may be applied by lenders.

For new loans: 31 May 05

For existing loans of 10 years or less: 31 May 07

For existing loans over 10 years: 31 May 10"

News to me but I know a large department full of people that will know for sure, let me check and come back to you.

jimladin

billywhizz wrote:

Was it exactly £25,000 or slightly more, £25,000 is where the Consumer Credit Act kicks in, anything over that and you;re outside the act and your protection evaporates.

All the documents we use for Car Finance were rewritten for March 2005, when the new rules kicked in on 31/5/05. Finally if you are subject to it and up to doing the calculation yourself to make sure you are only running to 78+2 .

As far as I am aware it only applied to agreements written after that date.

Hi,

yeah the loan was for just under £25k.

I have looked at the rule of 78 calculators and fully understand the results. However, are you saying that the rule of 78 method of interest repayment will only apply to me for 14months? Does this mean that after that date, the interest repaid will be equal each month?

Hope what i have asked makes sense

billywhizz

From what I've just been reading if you settle after May 2007 then you will be subject to settlement on an actuarial basis from day 1, Rule of 78 will cease to exist after that date at all.

Then settlement will use this formula
http://www.opsi.gov.uk/SI/si2004/20041483.htm

As to whether that spreads the interest evenly I'm not sure.

jimladin

ahhh, that's what i had hoped for. I have been reading some articles also. From what i can gather, it appears that indeed the rule of 78 will not apply to my loan as long as i don't settle prior to May.

If this is true, this is GREAT news.

billywhizz

jimladin wrote:

ahhh, that's what i had hoped for. I have been reading some articles also. From what i can gather, it appears that indeed the rule of 78 will not apply to my loan as long as i don't settle prior to May.

If this is true, this is GREAT news.

OK I've checked this out for you and Yes. as long as you leave settling until after 31st May 2007 then the new settlement regime will also apply to your loan (i.e you will be acutarial not rule of 78).

So don't settle before then :T

kevin_M

i just been reading about this. i have 2 loans that i was going to settle at the end of the month both taken out just after march 2005.

would it be worth wile me just dumping the cash into a high intrest account and w8 untill march.

or will it not make much diffrence. im thick when it comes to some stuff like this

thanks in advance