Early Settlement (Hidden Charges)!!!

marinabass

I took out a deferred loan, with MBNA, 1st June 2004. First payment 1st October. £5100 + 799.95 (ppi) = £5899.95 Charge £955.05 Total £6855.00. 36x£190.41. Have asked for settlement figure and was quoted £4,922.79 to be paid by 1/4. I was told this included £123.74 early settlement fee. Is this correct as there is nothing in the contract about a fee being charged for settling early.

MarkyMarkD

I don't think I really understand your figures. If you started paying monthly in October, you've paid 6 x £190.41 = £1,142.46.

You borrowed £5,899.95, so if they charged no interest at all, you'd owe £4,757.49.

In fact, you owe £4,922.79 which is £165.30 more.

You don't say what the interest rate was, but if it was about 8% APR the interest for 10 months on £5,900 would be around £393.33.

So your settlement figure actually sounds like a bargain.

Looking at it another way, you borrowed £5,100 + £393 in interest = £5,493; paid off £1,142 leaving £4,351, and are then being charged £572 for the PPI - or the £800 less a rebate of £228. That's almost exactly the correct pro-rata amount - so again don't see how you've been charged a fee unless the rate is lower than I guessed.

mountainofdebt

but the immediate thing that strikes me is why MBNA have included PPI in your early settlement figure.

As I understood it, PPI covered you if you couldn't make the payments...if you pay the loan off early you won't need this cover will you????

If they try and make you pay the PPI off in full I would recommend that you cancel the PPI, wait a month and then ask for another settlement figure.

marinabass

Cash advance £5,100.00
Insurance pp cover 799.95
Total Loan Amount £5,8995.00
Total Credit charge for loan 955.05
Total Amount Payable £6.855.00
APR 8.9%

Have paid 6 x £190.41 (£1142.46). Settlement figure £4922.79. Have been told today that the settlement includes £123.74 fee for settling early and the charge for pp is £416.38 which I think is very excessive. I have requested a statement. So will wait for that to arrive. Is it correct that credit companies can charge up to 4mths interest for early settlement and are MBNA being generous by only charging me 2mths.

mountainofdebt

To be honest I think I would resent paying over £400 for soemthing that was of no benefit to me. If you are serious about finishjing the loan off early then I would ask about canceling the pp first wait a month and then to pay off the loan.

Have you looked in your terms and conditions to see what interest penalties you are charged with as this may give you some bargaining power.

Rafter

Most loans charge some sort of early settlement penalty. I think the most common is 2 months, although you have 1 month to settle up so effectively the penalty is 1 months interest.

I think PPI cancellation is different and can still be calculated under the 'rule of 78' which means that the premium is higher up front and reduces over time.

Although 'mountain of debt' thinks PPI is unfair, you have still been insured for 9 months so some premium should be payable. You don't get a full refund of your car insurance at the end of the year, just because you haven't made a claim. I'm sure cancelling the PPI now will have no effect, since the premium will be just the same as they have calculated for the cancellation.

I'm sure MBNA will have arrived at a settlement figure in accordance with your terms and conditions too.

For next time.......

1) Don't take out PPI insurance, or if you do in order to get the best deal, cancel it within 30 days (PPI is an insurance policy so there is a cooling off period). If you want PPI insurance you can often buy it for a lot less from an insurance broker.

2) If you are planning to pay a loan off early, check the early settlement penalty. You may be better off paying a higher rate for a flexible loan or overdraft with no repayment penalties or using an offset loan linked to your mortgage or using 0% credit card deals.

R.

mountainofdebt

Rafter

What I meant was unfair was having to pay 30 months worth of PPI for a loan that's not in existance ....obviously for the time that the OP has had the cover I agree that the premium is due and should be paid.

Sorry if I didn't make myself clear.