Pay my loan off early

justthecook

The APR is quite high at 22.2% and in the contract it states that if the loan is 1 year old or less they will only charge 28 days worth of interest. But it would appear that with the settlement figure provided yesterday they are charging 56 days at 22.2%. The contract does not state that there are any additional charges or early settlement penalties other than the interest charged as above.

CLAPTON

what exactly does the early settlement letter say
what does the contract say about 'overpayments'

justthecook

The early settlement figure was obtained by phone. Nothing was mentioned about a letter being sent out although i'm sure one will be in the next few days.

There is no reference to overpayments.

randomnut

Whoa, a lot of blatant misinformation and unnecessary anger here in this thread.

I can tell you from experience, that if you have taken out a loan since 2010 I think it is, that you have the legal right to make penalty-free overpayments.

So, instead of paying it all off and paying the extra interest fee on top, make an overpayment of all but say £10 then on your next payment date the final £10 will be taken and the loan paid off.

I have done this when I refinanced a loan to another of a lower APR. Paid off the original with no interest fees to pay by overpaying all but a tenner.

CLAPTON

randomnut wrote: »

Whoa, a lot of blatant misinformation and unnecessary anger here in this thread.

I can tell you from experience, that if you have taken out a loan since 2010 I think it is, that you have the legal right to make penalty-free overpayments.

So, instead of paying it all off and paying the extra interest fee on top, make an overpayment of all but say £10 then on your next payment date the final £10 will be taken and the loan paid off.

I have done this when I refinanced a loan to another of a lower APR. Paid off the original with no interest fees to pay by overpaying all but a tenner.

sadly, 'from your experience' is NOT the same as the law

you are incorrect.

the same rule applies to overpayments as to final settlements

before the recent change (January 2011), it was permissible for loan companies to refuse to allow overpayments; the change in the rules requirement them to do so but allowed the same fee terms as early settlement.

apples24

we recently took out a 3k loan to buy a salvage car as it was a total bargain, plan to repay when repaired and we sell our other car for 3k


the bank lloyds told us to settlke early i would need to settle the outstanding amount plus 56 days interest, sounds fair enough to me

Bambam

I've had loans in the past - straightforward fixed rate loans; always paid by direct debit, always on time (except when payment date falls at a weekend or bank holiday). Always on the very last payment 'a bit extra' has been added on when the account is settled. Never queried it...maybe I should have done.

A few years ago my son took out a loan from his bank, again a straightforward fixed rate loan paid by direct debit and always on time. He got to the penultimate payment and as a little 'gift' I told him I would pay this and the final instalment. Rather than waiting for the direct debits to be taken out I went into the bank (with a note from my son authorising me to deal with any query - I'd asked my son to let me see his bank statements to confirm that all payments went out on time - yep, no problem everything looked fine.) I gave the clerk the account number and waited for her to ask for the outstanding amount. I had a really strong feeling it wouldn't be the exact 2 payments. Lo and behold there was about £27 extra to pay. Fed up at being ripped off with my own loans I asked what the extra £27 was for. The loan was being settled early by one month and the full payment was being made. She wasn't sure, just said that was the amount to settle the loan. I refused to pay until they could tell me why the extra £27. Off she went and came back and confirmed that all payments had been made, only late when the payment date fell on a weekend or bank holiday. Still refused to pay until I knew what the £27 was for. Eventually there were about 4 people on the case rushing around behind the counter. Finally an older man came to the counter and said they were 'waiving' the £27 'extra charge.' Would it have anything to do with the fact that you take out the payment late because the date happens to fall at weekends/bank holidays? He looked me straight in the eye and to this day I'm still waiting on his response, but his face said it all. Not my fault the bank doesn't open 24/7 :cool:. I finished by asking them to write to my son with an explanation why these charges have been incurred and I will gladly go in and pay it. No letter of explanation was ever received!

My advice to anyone who pays a fixed rate loan by direct debit and doesn't settle it early, always make the final payment in person or settle it before the bank/loan company takes the final direct debit, because if your payment date isn't Monday to Friday it will incur late payment charges.

randomnut

CLAPTON wrote: »

sadly, 'from your experience' is NOT the same as the law

you are incorrect.

the same rule applies to overpayments as to final settlements

before the recent change (January 2011), it was permissible for loan companies to refuse to allow overpayments; the change in the rules requirement them to do so but allowed the same fee terms as early settlement.

Well then let's all take our advice from some keyboard warrior who has simply read up online rather than people who have successfully done exactly what the OP has asked!! Completely legal and within the rules, told the bank exactly what I wanted to do, confirmed it could be done and penalty free, and it was done and dusted. Also, have confirmed again that it can be done as I am going to refinance this loan down to another lower APR and have checked I can do the same again.

Geez some people.

CLAPTON

randomnut wrote: »

Well then let's all take our advice from some keyboard warrior who has simply read up online rather than people who have successfully done exactly what the OP has asked!! Completely legal and within the rules.

Geez some people.

the law says the MAXIMUM they can charge
it doesn't say the MUST charge it

in your case they didn't charge it but without knowing the T&Cs of the OP loan it's not possible to say.

randomnut

This should clear up the rules

http://www.bis.gov.uk/assets/biscore/consumer-issues/docs/c/10-1053-consumer-credit-directive-guidance.pdf

Specifically chapter 14 is regarding early repayments.

Essentially there are only a few specific cases in which the bank can charge a fee.

Like if you are repaying over 8,000 early.

Compensation payable under section 95A – full and partial early settlement
14.17 Under new section 95A36, creditors are allowed to claim compensation in certain circumstances for costs incurred as a result of full or partial early settlement. This is subject to certain specific conditions and to an over- arching obligation that the compensation must be fair and objectively justified.

14.18 Compensation can only be claimed if the early settlement is made during a period for which the credit agreement provides for the rate of interest on the credit to be fixed. It cannot be claimed where the agreement allows for the rate to be varied by the creditor. If there is an initial fixed-rate period, compensation can be claimed only if early settlement occurs during that period.

14.19 Compensation can only be claimed if the creditor has incurred a cost as a direct result of the early settlement being made at that particular time. In other words, the cost must be directly linked to the early settlement happening at that time rather than at a different time or rather than resulting indirectly from it. The creditor would need to be able to demonstrate this if challenged.

14.20 If the creditor has incurred a cost but that cost would have been incurred regardless of when the early settlement was made, he cannot claim compensation for it. For example, the creditor cannot claim compensation under section 95A for the administrative cost of processing the early settlement as this cost would have been incurred regardless of when the early settlement was made. However, the creditor could claim compensation if interest rates at the time of early settlement were lower than the rate in the agreement and the creditor had to re-lend or invest the money at a lower rate.

14.21 In addition, compensation may be claimed only where the following conditions are met:

• The amount of a single early settlement exceeds £8,000, or the total of early settlements in any 12 month period exceeds £8,000. In the latter case, compensation can only be claimed when the "trigger point" of £8,000 has been passed. It can be claimed on the whole of the payment that passes the trigger point and any subsequent payments within the period, but not on payments made before the trigger point has been reached. So, if the borrower makes a single repayment
of £9,000, the section 95A compensation can be claimed on the whole amount. If the borrower makes multiple repayments of 4 x £2,000 and 1 x £1,000 (in that order), compensation can only be claimed on the £1,000. If the borrower makes multiple repayments of 3 x £3,000, compensation can be claimed on the third payment (because that is the one that activates the trigger).

• The early settlement is not made to repay an overdraft on a current account.
• The early settlement is not made under a PPI policy, whether provided by the creditor or by a third party. This means a policy designed to meet repayments on a specific debt or debts more generally (e.g. in the event of loss of income through illness or unemployment) rather than a policy designed to provide a lump sum to be used as the policy holder sees fit.

14.22 Under section 95A(3), the compensation must be fair and objectively justified. This is an over-arching obligation, which goes beyond merely satisfying the above conditions. The creditor will need to ensure that he can demonstrate, if challenged, that the compensation is fair and objectively justified in the particular circumstances.

14.23 Finally, the amount of the compensation claimed cannot exceed certain limits set in sections 95A(3)(c) and 95A(4). If the agreement has more than a year to run after the early settlement is made, the amount of the compensation must not exceed 1% of the amount repaid early. If the agreement has a year or less to run, the compensation must not exceed 0.5% of the amount repaid early.