GEMoney Loan - curious about settlement figures

Sheepy1209

I'm boinging this thread because I've done more reading on this and can't find any examples of this elsewhere.

Also - I didn't say hello - so - hello!

The issue: Settlement figure for a loan is much higher than the original amount at 1/4 of the term, far higher than a couple of months' interest, and without PPI.

The question: Have GEMoney found a new ruse to penalise early re-payers?

I'm aware of Rule of 78 and its replacement, but the issue with Rule of 78 was always that the capital balance didn't go down as much as you'd expect. Even if only by a little bit, it still went down!


I recently applied for a GE Money loan, didn't get the typical APR but was offered a 14.3% loan; I thought I might as well get the agreement to look through.

The loan was for £6500 paid over five years with a three-month deferral.
Monthly payment £152.73
Total charge for credit £2663.66
No PPI (I do have PPI for redundancy only through an independent provider)

What raised my eyebrows was the early settlement examples on the agreement:
After 1/4 term (15 pyts): £7663.01
After 1/2 term (30 pyts): £5521.50
After 3/4 term (45 pyts): £2990.60

I would have expected the outstanding balance at 1/4 term to be about £5300 (plus whatever the redemption penalty is, say two months' interest).

So how do they get a settlement figure which is nearly £1200 more than the original loan after 15 payments?

Curious I rang them up and was told (in an extremely patronising way) 'oh it's quite simple sir, we no longer "front load" loans'...... and they proceeded to explain that each month I would repay a fixed amount of interest (£44.39) and capital (as opposed to the amount of interest paid each month declining as the capital balance is reduced at a progressively quicker rate).

Does this mean I'm underpaying interest at the start of the loan which presumably gets added to the debt and therefore causes the total to rise in the early part of the loan?

Can anyone:

a) better explain how this works than my confused attempt?
b) tell me if this is common practice?

I've cancelled the application as I don't need theloan urgently, I'll let my credit file calm down a bit before I try anywhere else!

Sheepy1209

Boing!!!!!!!!!

johnnymiller1000_2

i have a hire purchase agreement on my car with capital bank which does something similar, and my settlement figure has gone up this month...

requested a settlement figure (via website & via letter for avoidance of doubt) and receive 2 replies dated 3 days apart

1st one 10th April says

balance outstanding 38905.84
rebate of charges 5713.81
amount to settle by 10/05/07 is 33192.03

second one dated 13 April

balance outstanding 38905.84
rebate of charges 5494.46
amount to settle by 10/06/2007 is 33411.38

despite that fact that between 10/05 and 10/06 i will have paid another installment of £564. this seems weird to me. is this normal ?

i was hoping to only have this agreement a short time, but i now owe more than when i started since the original loan value was 32,000

not happy ! only thing i've found about this kind of behavious is here http://www.creditlaw.co.uk/Refpages/Early%20settlement.htm

guinnessgirl

Hi, I used to work for GE and I can't remember the exact way it works but it's something a little like this (I'll use made up figures to make it easier)

When you take out the loan you have borrowed £5000 over 5 years and interest will be, in the life of the loan, £2500.

If interest is charged monthly the first month you have accrued more than you will do after, say a year of payments. So you have a monthly interest charge of, say, £90. Your £100 payment pays ALL THAT INTEREST and only £10 off the capital. So it goes on - as you pay off more, your interest charges start reducing, and your fixed payment starts to pay off more capital and less interest.

I hope that made sense (it's been a while and I didn't completely understand it at the time!) but basically they decide how much of your payment goes to interest and how much goes to paying off capital. As long as some of the capital is paid of each month, and the total interest charged over teh life of the loan matches the APR, it's all legal, I'm afraid.

Sheepy1209

Thanks for the replies - though it doesn't confirm what I was told on the phone - i.e. that in this particular loan the first payment would pay 1/60th of the total interest and 1/60th of the total capital, as indeed would the other 59 payments, which would result in an underpayment of interest in the first part of the loan.

The approach described by guinnessgirl is what I would normally expect and I regard as fair - but that isn't what GEMoney were doing on this occasion.

Note that when paid off as per guinnessgirl's thread, the capital would always reduce, even if only by a very small amount, and would only go up on resettlement because of repayment penalties - say a couple of months' interest.

I'll have to do some sums to convince myself!

silvercar

I don't know about your example, but I paid off a GEMoney loan early with no problems and very little interest charged. I even got a booklet with the loan explaining that making additional payments would reduce the term of the loan and the total interest paid.

foreversummer

Hi

I am buying a new Toyota car and I planned to pay for it on a personal loan. However, the salesman has offered me £500 off the price if I take Toyota's Hire Purchase agreement at a high APR of 16.5%.

He says that after I have made my first three monthly payments I can simply settle the HP Agreement and finance the car myself with my loan at a much better rate of interest. He said the only penalty will be one month's interest.

I did question the penalty for settling so early in an agreement, but he assures me that I will be £500 better off less one month's interest.

Does this sound right? I'm sure it used to be that if you settled early you could actually end up paying more than you borrowed.

If anyone has done anything similar, or can shed some light, I would appreciate it before I sign on the dotted line.

Many thanks
Foreversummer

jack_spratt_2

[quote=

foreversummer

;13690735]Hi

I am buying a new Toyota car and I planned to pay for it on a personal loan. However, the salesman has offered me £500 off the price if I take Toyota's Hire Purchase agreement at a high APR of 16.5%.

He says that after I have made my first three monthly payments I can simply settle the HP Agreement and finance the car myself with my loan at a much better rate of interest. He said the only penalty will be one month's interest.

I did question the penalty for settling so early in an agreement, but he assures me that I will be £500 better off less one month's interest.

Does this sound right? I'm sure it used to be that if you settled early you could actually end up paying more than you borrowed.

If anyone has done anything similar, or can shed some light, I would appreciate it before I sign on the dotted line.

Many thanks

Foreversummer

[/quote]


Yes that seems to be how it works but I am surprised that there is no interest free loan available on the Toyota you bought !!
Make sure you asked for a discount !! the car market is having a hard time at the moment and there are some good deals about out there as there is a slump in the market and dealers are desperate to move stock with manufacturer's given dealers a incentive to move cars.
I used a car broker they also took my trade in and I saved thousands on a new Toyota .

Just because you received discount from the finance does not mean you will not also get a discount of the car

jack_spratt_2

And by the way all dealing were done through a Toyota main dealer and no cash was paid until collected the car from them