Interest on loans

DJO9

Hi folks,

We took out a secured loan in Jan 07. It was taken out with Picture, via Oceon Finance. (Desparate times...). It was for 30750, with around 10% Apr. So far we have paid 297 per month, totalling around 15k.

Called up today for a settlement figure, as we hoped to clear the decks if we sell the house. Was told to pay off loan now is 30k ish. Said that as it was unregulated, all the interest is paid upfront! Does this sound right? I'm going to ask for data protection info to see our initial agreement. (Loan is now with web resolution?).

Any advice?

Thanks in advance!

opinions4u

While I would expect the figure to be a little lower than £30k you need to think through the following:

1) 10% of £31k is £3,100.
2) Paying £300 a month is £3,600.

So, very roughly, year 1 payments should reduce the balance by around £500.

Were there any other charges on top of the £30,750. Such as brokerage fees or PPI?

DJO9

There was no PPI on this.

The balance as it stands just now, is £29k or there abouts. With early re-payment and additional interest, it takes it t over £30k.

I just feel it's terrible that after £15k upfront, we are still in the same boat!???

D.

paddyrg

I'm not sure it is legal to calculate the full interest, add it to the loan, and then have all the payments only contribute towards that interest without decrementing the principal at all? Can you get them to write to you explaining how the settlement figure is calculated? As for 'unregulated', not sure I understand how loaning huge sums of money doesn't need some kind of registrtion, or what's the point of having regulations?

ERICS_MUM

DJO9 wrote: »

There was no PPI on this.

The balance as it stands just now, is £29k or there abouts. With early re-payment and additional interest, it takes it t over £30k.

I just feel it's terrible that after £15k upfront, we are still in the same boat!???

D.

It's about right I'm afraid. With any loan the first few years repayments mainly cover the interest. Like "opinions4u" says, only a small part of what you are paying each month is reducing the amount you borrowed. As the amount gets lower you will pay less interest and the loan amount will reduce faster (sorry I can't explain it any better ).

You'll probably pay mainly interest for the first half of the life of the loan.

sal7

My Picture loan is very similar to yours. My loan is with Webb Resolutions now, as see yours is. Did you get any explanation as to why? I'd be very interested to know. All I know is that the names and addresses are the same as letters that I used to get from Picture.
I have also been wondering about the interest on the loan and will be interested to see what you find out.

ERICS_MUM

paddyrg wrote: »

I'm not sure it is legal to calculate the full interest, add it to the loan, and then have all the payments only contribute towards that interest without decrementing the principal at all? Can you get them to write to you explaining how the settlement figure is calculated? As for 'unregulated', not sure I understand how loaning huge sums of money doesn't need some kind of registrtion, or what's the point of having regulations?

I don't think that's what they've done. I think the following is what they have done (I've rounded the figures to make it easier, as an approximate illustration):

Year 1 (2007):

loan £31,000
repayments: £300 x 12 = 3,600
interest: £31,000 @ 10% = 3,100
left-over to reduce loan = £500

Year 2 (2008):

loan £30,500
repayments: £300 x 12 = 3,600
interest: £30,500 @ 10% = 3,050
left over to reduce loan = £550

Year 3 (2009):

loan £29,950
repayments: £300 x 12 = 3,600
interest: £29,950 @ 10% = 2,995
left over to reduce loan = £605

Year 4 (2010):

loan £29,345
repayments: £300 x 12 = 3,600
interest: £29,345 @ 10% = 2,934
left over to reduce loan = £666

Year 5 (2011) Jan to June 6 months:

loan £28,679
repayments: £300 x 6 = 1,800
interest: £28,679 @ 10% = 1,434
left over to reduce loan = £366

Year 5 (2011) 1st July

Loan £28,313 = current balance
PLUS: whatever "early repayment" charge or interest they will charge you in accordance with the original loan agreement you signed.

Hope this makes sense, it's how most loans are calculated. Your loan must be for a very long period (20 years ??)

sal7

Thanks so much.This is helpful for me too. I just wish I had understood this before I took my loan. I'm sure it's all there in the small print about how it works out. But it was, and still is, beyond me!

paddyrg

ERICS_MUM wrote: »

I don't think that's what they've done. I think the following is what they have done (I've rounded the figures to make it easier, as an approximate illustration):

....
Hope this makes sense, it's how most loans are calculated. Your loan must be for a very long period (20 years ??)

Nicely worked example Actually I believe you're right, it was just the OP said they were told by the lender something to the effect that as the loan was unregulated (?) that it was structured with all the interest upfront. If that is what they said, and if what they said is true, that's what I'm questioning the legality of!!

CLAPTON

paddyrg wrote: »

Nicely worked example Actually I believe you're right, it was just the OP said they were told by the lender something to the effect that as the loan was unregulated (?) that it was structured with all the interest upfront. If that is what they said, and if what they said is true, that's what I'm questioning the legality of!!

well, it's quite clear from ericsmum's excellent example that all the interest wasn't added up front otherwise the settlement figure would be much much higher.

I've now forgottent the details but it was the case that loans above 25k were 'unregulated' by the CCA regulations but in this case I'm afraid the figures look not too unreasonable.

DJO9

CLAPTON wrote: »

well, it's quite clear from ericsmum's excellent example that all the interest wasn't added up front otherwise the settlement figure would be much much higher.

I've now forgottent the details but it was the case that loans above 25k were 'unregulated' by the CCA regulations but in this case I'm afraid the figures look not too unreasonable.

Got my settlement letter through...

Thanks for the interest example above!!

My only gripe is that a £30750 loan, after paying £15k over 4.5 years, will cost £31k to settle... :mad:

I've noticed that with this loan, you can transfer the loan to another property, that will possibly give us the scope to still move and sort this out at a later date (and pay off our debts that has interest frozen - I'd rather clear them so that our rating starts to improve!).