Early redemption of loans taken out before 31 May 2005

bombastic32

Having read this thread I decided to inquire about paying my Tesco finance loan off early.

I started with a £14000 loan over 4 years in Feb2005 and with a 2 month payment holiday have 25 payments left at about £358 / month.

I asked tesco about the repayments and they sid it would be about £8400. So I asked what the balance was ant the reply was £8900. Then I asked what the balance was without the interest calculated until the end of the 4 year term. either they couldnt or wouldnt tell me.

Then I asked if the loan was calculated as per rule 78 and they said YES. i then mentioned the change in ruling as of the 31st may 2007. They were not aware of this, nor was the supervisor and nor was the manager. Now I am worried?

Assuming that the change in rules does effect loans before May 2005 and the change happens on the 31st May 2007, how will this effect my loan? Will the new method of calculating the loan apply to the whole loan (back dated) or from now only?

Lastly, can anyone explain why tesco know nothing about this?

tom

bombastic32

jamesd wrote: »

Zeusie, quoting from the regulations:

"The [older] Regulations ... continue to apply... before the date on which these [new, better] Regulations come into force -

(a) until 31st May 2007, if the agreement is for a term of 10 years or less;

(b) until 31st May 2010, if the agreement is for a term of more than 10 years."

You can ask for a settlement amount effective 28 days plus some allowance for time in the mail (call it 32 days total) from when you read this if you want.

Or on 1 April you can pay the balance plus two extra monthly payments to allow for interest for one month and minor calculation differences. You should end up with a partial refund cheque after this because it's likely to be more than you really need to pay.

For loans covered by the new rules it's always cheaper to immediately pay this overpayment and then wait for them to return the excess, because this avoids the 28 days notice and extra interest period they are required to include in their calculation if you ask them for the settlement amount.

Thanks James, where did you get this bit of info, was it in the consumer credit act 2004?

jamesd

It's from the The Consumer Credit (Early Settlement) Regulations 2004.

If you don't have a statement or similar, "Please send me an early redemption figure calculated in accordance with the requirements of the Consumer Credit (Early Settlement) Regulations 2004 and in addition confirm that you are using the calculation method specified there, not the prohibited rule of 78 method" is the way to go.

bombastic32, I don't know, but I see no provision for using the old methods for any part of an old loan. This would be a topical area for Martin to research, given the large number of loans it will soon apply to. Meanwhile, I suggest that on 1 April you post them a request using the quoted text in the last paragraph. You should get an answer less than two weeks later with a figure for the end of the month, unless they are caught completely by surprise and haven't yet got a way to calculate it.

regularsaver1

I know of some that charge 2 months interest penalty?

regularsaver1

I know of some that charge 2 months interest penalty?

jamesd

regularsaver1, it's 28 days plus if the loan is longer than one year the lenders choice of nothing, 28 days or one month extra.

Worth watching out for loans with a term of just over a year to exploit this. You can eliminate the first 28 days by paying without asking for a settlement figure, you can't eliminate the over one year part.

regularsaver1

I think the Halifax charges 2 months interest, because you don't make your first payment until the 3rd month

I could be wrong, but I thought that was what it was

regularsaver1

"The amount you have agreed to pay us includes interest charged to the end of the loan term. You'll only have to pay a proportion of the interest still owing because the settlement figure is calculated with the benefit of a statutory rebate of interest that you are entitled to when repaying your loan early.
There is no charge for repaying your loan early, but as described above you'll pay a proportion of the interest that would have been paid."

But just found this on website. I've seen more interest added on settlement figures, as well as rebates.

Confused

bombastic32

jamesd wrote: »

It's from the The Consumer Credit (Early Settlement) Regulations 2004.

If you don't have a statement or similar, "Please send me an early redemption figure calculated in accordance with the requirements of the Consumer Credit (Early Settlement) Regulations 2004 and in addition confirm that you are using the calculation method specified there, not the prohibited rule of 78 method" is the way to go.

bombastic32, I don't know, but I see no provision for using the old methods for any part of an old loan. This would be a topical area for Martin to research, given the large number of loans it will soon apply to. Meanwhile, I suggest that on 1 April you post them a request using the quoted text in the last paragraph. You should get an answer less than two weeks later with a figure for the end of the month, unless they are caught completely by surprise and haven't yet got a way to calculate it.

I am away on business and dont have a statement with me. The exact figures are as follows: £14000 loan over 4 years starting in Feb 2005 + a 2 month payment break. This leaves 25 payments at 358.46. I only have figures calculated by Rule 78. They are - outstanding balance - £8961.50 (this includes all interest calculated up to the end of the fixed term. Settlement figure is £8482.82.

I had a ring round yesterday. Tesco told me to talk to the financial service authority and they sent me to the office of fair traing who then forwarded me to the consumer trading. once back at the OFT and two call back later they confirmed that my loan will be calculated by the new regulations on the 31st May 2007. What next? Surely Tesco must be aware of the consumer credit act!!!!

bombastic32

Refresh, any more info on this subject please?