We'd like to remind Forumites to please avoid political debate on the Forum. This is to keep it a safe and useful space for MoneySaving discussions. Threads that are - or become - political in nature may be removed in line with the Forum’s rules. Thank you for your understanding.
Car loan reported fairly
goaroundnow
Posts: 95 Forumite
in Loans
Hi
I have been meaning to ask this for ages.
My car is financed through VW Finance and I am not totally convinced that they are reporting the balance of the loan fairly to the credit agencies.
It is a PCP (balloon payment at end) contract
The car was £42k
I paid £2k deposit
The final value (balloon payment) is £18k
As I see it, I have a loan for £22k plus interest, plus interest on the final payment (i.e. an interest only loan on this part)
VW began to report this as a loan exceeding £50k, in other words the total value of the loan (£40k - including balloon payment) plus interest. Each month it reduces by the exact same amount as the monthly payment, which also seems different to how other loans are reported. It is marked as "Hire Purchase" on the credit files.
The problem I have is that I think automated credit scoring systems see a loan in the region of £50k and my credit score falls through the floor due to high debt-to-income.
A loan from my bank was reported, from the beginning, as the amount of the original loan (no interest added to the balance) and reduced each month, not by the payment amount, but by the amount of capital that was actually being paid back each month. This seems more normal and fairer as if you settled early (like with the car loan), you would only pay a couple of months of interest penalty.
I don't believe that VW should add the entire term's interest onto the balance as if you settled early, on any given day, you would not be liable for all that interest.
So;
1) Is it normal for the balance of hire-purchase/PCP agreements to be reported like this?
2) Do credit scoring systems distinguish "Hire Purchase" accounts as secured lending (which they are) and do they affect your credit score / debt ratios differently?
Thanks a lot!
I have been meaning to ask this for ages.
My car is financed through VW Finance and I am not totally convinced that they are reporting the balance of the loan fairly to the credit agencies.
It is a PCP (balloon payment at end) contract
The car was £42k
I paid £2k deposit
The final value (balloon payment) is £18k
As I see it, I have a loan for £22k plus interest, plus interest on the final payment (i.e. an interest only loan on this part)
VW began to report this as a loan exceeding £50k, in other words the total value of the loan (£40k - including balloon payment) plus interest. Each month it reduces by the exact same amount as the monthly payment, which also seems different to how other loans are reported. It is marked as "Hire Purchase" on the credit files.
The problem I have is that I think automated credit scoring systems see a loan in the region of £50k and my credit score falls through the floor due to high debt-to-income.
A loan from my bank was reported, from the beginning, as the amount of the original loan (no interest added to the balance) and reduced each month, not by the payment amount, but by the amount of capital that was actually being paid back each month. This seems more normal and fairer as if you settled early (like with the car loan), you would only pay a couple of months of interest penalty.
I don't believe that VW should add the entire term's interest onto the balance as if you settled early, on any given day, you would not be liable for all that interest.
So;
1) Is it normal for the balance of hire-purchase/PCP agreements to be reported like this?
2) Do credit scoring systems distinguish "Hire Purchase" accounts as secured lending (which they are) and do they affect your credit score / debt ratios differently?
Thanks a lot!
0
Comments
-
my creation loan does this, nothing unfairDon't put your trust into an Experian score - it is not a number any bank will ever use & it is generally a waste of money to purchase it. They are also selling you insurance you dont need.0
-
You have a loan for £40k, not £22k.
Who do you think paid the garage the other £18k?Optimists see a glass half full
Pessimists see a glass half empty
Engineers just see a glass twice the size it needed to be
0 -
I can accept that I have a loan for £40k but is it normal for the interest to be added to the balance and reported as a whole? It seems from the point about Creation that it happens and so can be standard practice. I still do not think that provides an accurate reflection of our debt position.
I am well aware who paid the £18k (thanks for the thinly veiled sarcasm) my real issue is with it being reported with the whole term's interest and how secured loans are viewed by scorecards.0 -
goaroundnow wrote: »I can accept that I have a loan for £40k but is it normal for the interest to be added to the balance and reported as a whole? It seems from the point about Creation that it happens and so can be standard practice. I still do not think that provides an accurate reflection of our debt position.
I am well aware who paid the £18k (thanks for the thinly veiled sarcasm) my real issue is with it being reported with the whole term's interest and how secured loans are viewed by scorecards.
Apologies if that came across as sarcasm, but you clearly segregated the £22k that you're paying back during the term, with interest, from the £18k you're paying back at the end of the term, with interest.
Your question was about whether it is normal for the interest to be calculated for the whole term and added to the outstanding balance as reported to CRAs. I think that with PCPs that is usual.
Unless the loan agreement allows you to repay early and recover some of the interest, then it does reflect your true indebtedness.Optimists see a glass half full
Pessimists see a glass half empty
Engineers just see a glass twice the size it needed to be0 -
Yes, this is standard and the loan will show as a balloon payment.0
-
It does allow you to repay early and recover almost all the interest (except 2 months), so that is why I do not consider it a true reflection of indebtedness.
Anyway, if that's how they do it, I suppose there is nothing I can do about it.0 -
goaroundnow wrote: »It does allow you to repay early and recover almost all the interest (except 2 months), so that is why I do not consider it a true reflection of indebtedness.
Anyway, if that's how they do it, I suppose there is nothing I can do about it.
You can always pay the loan off now, save all that interest and increase your credit rating.0 -
wow 40k for a VW, is it gold plated?"We want the finest wines available to humanity, we want them here, and we want them now!"0
-
40 grand for a car on tick!
Rodney u plonker!0
This discussion has been closed.
Categories
- All Categories
- 347.2K Banking & Borrowing
- 251.6K Reduce Debt & Boost Income
- 451.8K Spending & Discounts
- 239.4K Work, Benefits & Business
- 615.3K Mortgages, Homes & Bills
- 175.1K Life & Family
- 252.8K Travel & Transport
- 1.5M Hobbies & Leisure
- 16K Discuss & Feedback
- 15.1K Coronavirus Support Boards