Early Settlement - workings

GeorgeUK

I have read that after May 2005, companies should be using the Consumer Credit (Early Settlement) Regulations 2004 to calculate early settlements instead of the rule of 78, but i must admit to being confused. Anyone know of any online calculators that will work it out for you?

Below i have calculated what i think would be the saving and settlement value of my loan.

Loan Amount 10,000
Total Interest 1,794.08
Monthly Payment 245.71
Total no. months 48

rule of 78 - (no. of parts interest divided into) n*(n+1)/2
48*(48+1)/2
=1176

I just paid month 38, so 10 months remain
Subtract from this the number of days interest (58 days standard) - i need to add 14 days to this as that's how long ago my alst payment was.
10-((58+14)/365*12)
=7.632877

n*(n+1)/2
=7.632877*(7.632877+1)/2
=32.94684

32.94684/1176*1794.08
saving from early repayment = £50.26

I just made a payment of 2406.84 and had 2457.10 remaining so unless it's a huge coincidence, i'd have to say that they are using the rule of 78 method instead of the Consumer Credit (Early Settlement) Regulations 2004. It took me long enough to figure out the first method!!

Any comments?

jonesMUFCforever

When did you take out the loan?

GeorgeUK

The loan was taken out in Feb 2008

jonesMUFCforever

In that case Rule of 78 has not been used with your loan.
Have you asked the lender for a redemption figure/

CLAPTON

try

http://www.financecalcs.co.uk/Calcs/Settlement.php

GeorgeUK

2406.84 is the amount that they stated as the settlement figure and said that this included 58 days interest

GeorgeUK

Not sure how to use that calculator Clapton. The APR was 7.95%, but the site states 8.7% when i input the figures??

CLAPTON

well

all calculators have to make assumptions eg.

when ws the first payment made .. was it exactly 30 day after the loan was received or did you have a payment free month ?

GeorgeUK

Aaah! Forgot i had 2 payment free months at the start - doesn't look like i'll be able to work this out longhand - just seems quite strange that the figure they came up with is exactly what i work out the rule of 78 to be. Could just be my dodgy maths though.

CLAPTON

yes

those little details make a difference; those two payment free months aren't interest free so an additional £130 ish in interest was 'added ' to the loan which broadly explains trhe differences