Citroen Finance - legally right? Morally wrong?

katecheshire

I have just contacted Citroen Finance to enquire how much the settlement figure for my car loan would be. I have to confess that this was a very bad choice in the first place: the car salesman quoted me 7% when I asked about the APR. It turned out to be 16.4% - of course I should not have signed up but I did. :mad:
Anyway I am now in a position to pay off £1700 outstanding balance BUT even if I pay it off 18 months early I get only £115.60 rebate on my interest. When I enquired I was told that 'it's a front loaded account'. That is you pay off the interest first and then the capital. :mad: :mad:
It seems hardly worth paying it off early as I could use the money for something else. What do you think?
Is it worth making more of a fuss or should I just carry on paying until it finishes?

katecheshire

PS I did tell them I was going to post this on MSE which millions of people see

ianian99

katecheshire wrote: »

PS I did tell them I was going to post this on MSE which millions of people see

oh i bet that has them worried

flaura

pesonally £115.60p is better than a poke in the eye with a sh***y stick ! better than no saving at all

Rafter

Kate,

The 7% is the 'finance charge'. So if you paid 5000 for the car they add 7% to the price or £350 for finance. That doesn't sound too bad - but because your average loan is £2500, because you are paying it off all the time, the APR works out much higher - as you have found out.

I'm sure the APR was on your paperwork you signed - it has to be by law.

As for frontloading the interest - of course they do! Otherwise you are borrowing £5000 in year 1 but only £1000 in year 5 and paying the same amount of interest each year.

The refund is probably calculated using something called the rule of 78, which penalises you slightly but isn't much worse than the more accurate actuarial methods.

Look at it this way, the balance outstanding on your loan in £1700 you are paying it off 18 months early and your APR is 16.4%

Your average loan over the 18 months if you had stuck with it is £850.

£850 x 16.4% x 1.5 years (18 months) = £209 of interest, so you are getting a 'mean' refund, but I'm sure it will be calculated in accordance with the agreement you signed.

Unfortunately if you carry on with your loan and invest the £1700 tax free you will only earn about £64 in interest at 5%, so you are still better off paying it off.

You have no complaint. You could try a complaint to the finance company copying in the dealer to say you will never buy a citroen again unless they are a bit more generous with their interest refund, but otherwise no amount of posts on here, letters to the papers or official complaints are going to get you any more I'm afraid.

Just remember that car dealers aren't reknowned for their honesty, so don't take the rate they tell you at face value - always check the paperwork for the APR before signing a credit agreement. It cost you maybe £300 in this case - others who have taken out secured loans with have lost £'000s by not reading (or understanding) the implications of what they are signing.

R.

billywhizz

If you took the loan out since 31/5/05 then the settlement calcuation is an acturial based calcualtion and is deemed "fair" by the OFT, if you took it out prior to then you are getting an old "Rule of 78" calucation, this will be reomved from all loans of less then 10 years from 31/5/07 so if it is an older loan it may be worth waiting till then as you may get more rebate.

http://money.uk.msn.com/Banking/Loans/Special_Features/better_borrowing/article.aspx?cp-documentid=143383&wa=wsignin1.0