Sainsbury front loaded with maximum penalty!

orlandoorange_2

Hi All,

I have searched google and the forums here and can’t seem to find anything other that “that scheme finished…. Its not allowed any more” and such, but I am probably reading things wrong so I hope someone can help throw some light on this.

I took out a large (£25k) personal loan with Sainsbury’s bank in July 2010 to help pay off c/cards and keep the wolf from the door while I sold my house, which completed in December 2010 with the intention of paying off the loan and putting less money into my new house (having a larger mortgage).

Knowing full well all the talk of front loading loans not being allowed and settling the loan would only attract a couple of months interest, I took out the loan without too much further thought… it was worth a couple of months interest charges against what I was paying on CC’s etc.

When I contacted Sainsbury bank in January 2011 to repay the £25,000 loan they gave me a settlement figure of just over £33,000. Shocked and unable to pay this extra £8k (as I had budgeted for around a £27k repayment to cover interest payments), I just continued to make the monthly payments out of my lump sump. I am still not sure how they could try to charge me the whole interest payments for a 7 year loan over a six month period and keep within their APR of 8.7%

Due to some very unfortunate circumstances I have come into a little bit of money (£10,000) and thought the obvious thing to do would be to pay off some of the loan in the hope of reducing my monthly repayments. Sainsbury now tells me that all it would do is shorten the term, and they will keep to the same monthly repayment amount , basically the £10,000 would just be an overpayment and reduce the capital lump of the loan with some reduction of the final payment.

The only solution I can see here is to get another loan to pay off the Sainsbury loan minus the lump that I can put in, which would bring my monthly payments down and help with other regular bills.

There is no PPI on this loan from what I can see, at the very least I hope this helps someone else to understand that all the talk about two months maximum interest payment on early repayment, and “no front loading” is a myth, at least with Sainsbury. What confuses me a little is there is no mention of this issue on the compare sites including this one, an £8k extra payment isn’t a penalty its just daylight robbery.

The interesting bit of print on my loan agreement is “Interest is calculated based on the total amount you pay for the total loan at the annual interest rate and applied at the start of the total loan”

If anyone has any other solutions to this problem I really would appreciate it.

Many thanks

Rachel

CLAPTON

what does it say about early settlement and overpayments?

Tixy

Does the agreement actually state that is it an agreement under the consumer credit act?

SeanG79

The T&C's will define overpayments and early repayments.

Essentially from how you have explained, your repayments stay the same throughout that agreement, however the term will shorten. The interest is calculated on the outstanding balance, so if by overpaying and settling in a shorter period of time you will pay less interest...What they don't do is allow you to make a lump sum payment and then reduce the monthly payments.

This type of loan agreement is common and does NOT mean it is front loaded or with maximum penalty. The more you over pay, the shorter the term the more you save on interest. Many mortgages work on exactly the same method

orlandoorange_2

Hi Guys,

Thanks for your fast replies, it does give some examples of repayment after certain periods of time. First one is after a quarter of the term elapses : £20,867.33

Yes it does mention the CCA 1974 so I imagine so.

Yes, the repayments remain the same throughout the duration. I can see how the settlement figure would be less by settling early.

I have a feeling I should have got the original settlement figure in writing instead of relying on Sainsbury banks advisors, I am going to presume that the £33K settlement figure after six months was misleading. I do remember at that time thinking "well what is the point settling early if they are still going to charge me the full interest for the term".

From what you say Sean, it would seem appropriate they they will come back with a settlement figure now a couple of years on with something much more inline with what I think it may be (ie around 20K).

The "...applied at the start of the total loan" seems quite confusing.

Will let you know how I get on today.

Thanks for all your help so far.

Rachel

SeanG79

Rachel,

Make sure they quote you a settlement figure as opposed to an outstanding balance.

How the agreement will work in reality is that the interest is added at the start and when you request a settlement figure or pay a lump sum, there will be a rebate of interest on the settlement figure.

Purely an example: Outstanding balance: £27,000.00
Settlement figure valid for x days: £25250.00
interest rebate £1750.00

CLAPTON

orlandoorange wrote: »

Hi Guys,

Thanks for your fast replies, it does give some examples of repayment after certain periods of time. First one is after a quarter of the term elapses : £20,867.33

Yes it does mention the CCA 1974 so I imagine so.

Yes, the repayments remain the same throughout the duration. I can see how the settlement figure would be less by settling early.

I have a feeling I should have got the original settlement figure in writing instead of relying on Sainsbury banks advisors, I am going to presume that the £33K settlement figure after six months was misleading. I do remember at that time thinking "well what is the point settling early if they are still going to charge me the full interest for the term".

From what you say Sean, it would seem appropriate they they will come back with a settlement figure now a couple of years on with something much more inline with what I think it may be (ie around 20K).

The "...applied at the start of the total loan" seems quite confusing.

Will let you know how I get on today.

Thanks for all your help so far.

Rachel

the figure you quote for a settlement figure after a quarter of the period has passed, is totally consistant with the CCA rules and means the loan is NOT front loaded.

you need to ask for a settlement figure and get it in writing

iolanthe07

totally consistent with the CCA rules

Loans of £25K+ are not covered by the Consumer Credid Act (see Tixy above).

SeanG79

iolanthe07 wrote: »

totally consistent with the CCA rules

Loans of £25K+ are not covered by the Consumer Credid Act (see Tixy above).

From the OFT

2 REGULATED AGREEMENTS
Consumer credit agreements
2.1 A consumer credit agreement is an agreement between an individual
(the debtor) and any other person (the creditor) by which the
creditor provides the debtor with credit of any amount.
1
2.2 The definition of 'individual' includes not only a natural person but
also:
• a partnership consisting of two or three persons not all of whom
are bodies corporate, and
• an unincorporated body of persons which does not consist entirely
of bodies corporate.
2
2.3 'Credit' is defined in the Act as a cash loan, and any other form of
financial accommodation - that is, any circumstances in which the
debtor is allowed time to pay. It includes a hire-purchase agreement.

The £25k exemption was removed in 2006...The only time the loan would not be regulated is if it was a loan to a partership with more than 4 members or a limited company, a finance agreement for business use (business exempt) or if the loan was secured against property or land, e.g. a mortgage or loan secured by second charge.

The OP states this is a personal loan and mentions no security, so the loan will be regulated by the CCA

Tixy

iolanthe07 wrote: »

totally consistent with the CCA rules

Loans of £25K+ are not covered by the Consumer Credid Act (see Tixy above).

They are usually now, have been since 2007 I believe, unless it falls as an exempt agreement for any reason, which to be fair are rare. But just thought I'd ask based on the initial post, and the way it was worded.

Edit - sorry Sean, hadn't seen your reply.