Have I been mis-lead in to loan?

ILW

Hanky_Panky wrote: »

Interesting thread here which describes exactly what I am referring to - laughingly Clapton even contributed. The only slight bone of contention now is whether you have to pay all the interest even if you settle early. In the example below with HFC the borrower is given a rebate on interest 'unused' because they are settling early and this is exactly how I would expect it to work.

https://forums.moneysavingexpert.com/discussion/comment/13489975#Comment_13489975

Sorry redpete but interest is added on to the sum borrowed and the interest is front loaded exactly as I claim. By the way I have arranged 100's of these.

If the interest is front loaded, what happens with late payments?

Hanky_Panky

ViolaLass wrote: »

The post you linked to (post 4) explains what front loading is and isn't. As I have stated, when interest is front loaded, you pay it all, regardless of when you pay the loan off. There is no rebate.

So far you have been rude about Clapton, claimed that mortgages not being front loaded made my point invalid (it did not. My point was simply that mortgages /could/ be made to be front loaded, not that they /are/. Plenty of loans are not front loaded, which does not mean that it would be impossible for them to be so) and shot yourself in the foot. Enough for one day?

No, because all I have tried to claim is that it is entirely possible to have a loan with the interest added on at the start of the loan - end of. All the other bumf around mortgages etc is just detracting from the point.

In the linked example all the op's interest is added on at the start of the loan with HFC, exactly proving my point - what is so contentious about that ?

It is a separate issue to talk about whether it is all paid regardless but again in the linked example it isn't - the op is offered a rebate on the portion of interest 'unused'.

Enough for one day

Hanky_Panky

ILW wrote: »

If the interest is front loaded, what happens with late payments?

A few years ago - nothing. These days I suspect they add all sorts of late payment charges on.

ILW

Hanky_Panky wrote: »

A few years ago - nothing. These days I suspect they add all sorts of late payment charges on.

Excepting charges, surely more interest must be payable.

opinions4u

Hanky_Panky wrote: »

Don't disagree with anything you have said - it also doesn't contradict anything I have said so not too sure what your point is - sorry.

Probably because you're too busy trying to undermine another poster to read what was stated in the post. I'll summarise the points if it helps.

1) The terminology of "Pre-computed" that you introduced to the debate was not known by others on the thread. I was pointing out that it appears to be an Americanism, hence the lack of understanding.

2) I repeated the point that a full and early repayment of capital would have the same repayment figure whether calculated with a rebate to the total amount payable if the loan ran its term, or if calculated from the completion of the loan with monthly interest charges. Broad as its long in today's regulatory environment.

3) I introduced the subject of part repayments (which I don't think has been mentioned elsewhere in the thread) and explained how, on many loan agreements, these do not reduce the interest being charged on the original debt until the balance hits zero. In other words, part repayments on many loan agreements are not cost effective.

4) I provided an example of where your sweeping statement regarding mortgages could be shown to be incorrect.

You may have sold a fixed rate mortgage for 25 years - as I mention though the numbers of these are very, very small therefore inappropriate to compare that with a loan. Secured loans usually are regulated (or at least were) so again can't really be compared with a mortgage - by the way I have dealt with thousands of these .

But a secured loan agreement can be compared to an unsecured loan agreement. And 10 year fixed mortgages are not totally unheard of.

Once again the point of my original post was that it is common to have a loan where the interest is calculated and added at the beginning of the loan - how it it subsequently settled is irrelevant to my point.

But totally relevant to the individual who started the thread.

Hanky_Panky

opinions4u wrote: »

1) The terminology of "Pre-computed" that you introduced to the debate was not known by others on the thread. I was pointing out that it appears to be an Americanism, hence the lack of understanding.

Good, more learning which is only a good thing

opinions4u wrote: »

2) I repeated the point that a full and early repayment of capital would have the same repayment figure whether calculated with a rebate to the total amount payable if the loan ran its term, or if calculated from the completion of the loan with monthly interest charges. Broad as its long in today's regulatory environment.

Not remotely relevant to my subsequent point.

opinions4u wrote: »

3) I introduced the subject of part repayments (which I don't think has been mentioned elsewhere in the thread) and explained how, on many loan agreements, these do not reduce the interest being charged on the original debt until the balance hits zero. In other words, part repayments on many loan agreements are not cost effective.

Again - as above.

opinions4u wrote: »

4) I provided an example of where your sweeping statement regarding mortgages could be shown to be incorrect.

But a secured loan agreement can be compared to an unsecured loan agreement. And 10 year fixed mortgages are not totally unheard of.

No becuase a secured loan and mortgage are not the same thing and also completey irrelevant to my point.

opinions4u wrote: »

But totally relevant to the individual who started the thread.

Agreed however they have long since moved on and the question I raised was valid too. However more important is the fact that incorrect advice was given to the OP regarding how their loan worked - surely you agree it is vital in these situations that the FACTS are given when someone is looking for advice and when those facts are subsequently proved incorrect there is a duty to point that out.

~Brock~

Whilst not wanting to become part of the mutual slagging off that this thread appears to have degenerated into, perhaps I might add a few words to clarify the confusion that has developed.

Whether loans are set up with the interest added up front of not depends on one thing and one thing only.....whether it is a fixed interest rate or not.

If the interest rate is fixed, the total amount payable will not change and is therefore a known quantity from day one. It is therefore a requirement for the lender to show this on their loan documentation. The loan agreement regulations, the latest of which can be found here, make this very clear.

If the loan has a veriable interest rate then the total amount payable cannot be confirmed with certainty at the beginning. These loan agreements may well still state the total amoutn payable and the total amount of interest (although they are careful to add wording like 'assuming no change to the interest rate charged'), however they cannot be set up with all the interest added at the beginning, because this may well not be accurate. This is why variable rate loans tend to charge interest on a monthly basis.

This is also why you will never see a mortgage or other long term secured loan set up with the interest added on day one.

The outcome for the consumer should be the same. In the event of settlement on a fixed rate loan a settlement figure is calculated that takes into account a rebate of interest based around the unexpired term. In the event of a variable rate loan being settled a similar calculation is used however this may mean the settlement figure ends up higher than the actual prevailing day to day balance at that time.

So there you have it. No drama, no conspiracies, just simple facts. I hope this clarifies a few points of confusion.

Jollyroger_2

I am really hoping someone can help me with a problem that I am having that is very similar to the original post.

In June 2007, I was desperate for a car and had no choice but to take a loan with the dealership, now I generally try to avoid borrowing money in this way and it was my first time at taking a loan.

When I took the loan, at no time was I told the loan was front loading interest and there is no mention in the terms and conditions or in the loan breakdown. Today I have contacted Barclays to see what the early repayment would be and the repayment is almost double what I thought it would be, hence when I learnt it was front loaded.

I have lodged a complaint with Barclays, but I was hoping someone could advise me if there is anything I should be aware off?

~Brock~

Jollyroger wrote: »

I am really hoping someone can help me with a problem that I am having that is very similar to the original post.

In June 2007, I was desperate for a car and had no choice but to take a loan with the dealership, now I generally try to avoid borrowing money in this way and it was my first time at taking a loan.

When I took the loan, at no time was I told the loan was front loading interest and there is no mention in the terms and conditions or in the loan breakdown. Today I have contacted Barclays to see what the early repayment would be and the repayment is almost double what I thought it would be, hence when I learnt it was front loaded.

I have lodged a complaint with Barclays, but I was hoping someone could advise me if there is anything I should be aware off?

Here's my suggestions.

1. Read my post (just above yours) carefully. It will point out the fact that the amount payable, whether over the full term of the loan or upon early settlement, is the same regardless of how the interest is added tot he loan. It is likely that what they have given you is a balance, which is not the same as a settlement figure.

2. In future, don't be rushed into signing a loan contract that you probably didn't read properly, no matter how desperate you are for the car. The loan will state how much is payable in total and even if it doesn't it is hardly difficult to multiply the monthly repayment by the number of months that the loan is over to find this figure out for yourself. Claiming not to be aware of this is no reason to argue that you have been mislead three years later.

3. When you next have a question, please start a new thread of your own. It is considered bad etiquette to hijack someone else's thread.

Oh, and welcome to MSE ! :money:

Jollyroger_2

Firstly, I apologise for my etiquette.

Barclays have definitely given me a settlement figure as there is about £200 difference between the balance and settlement. The £200 being what they called an interest rebate.

I did read all the documentation thoroughly, there is no mention at all of the interest being front loaded in the terms and conditions, thats where I have been mislead, maybe I have been naive but unless it is in black and white then how was I suppose to know thats how loans operate?

I am not saying its illegal or anything like that, just asking if I have been genuinely mislead and as it isnt mentioned in the T&C then contractually can i argue it?