One month’s interest scam??

Rhizee

Hello – I need some advice!

A couple of years ago I got a £20k loan at 22.9% (desperate times desperate measures!)

As part of my DFW plan I have got a new loan at 9.9% (still not cheap, but considerably less) to pay this off – even with the one month’s interest penalty for early redemption it’s going to work out a big saving! Yay!

I was therefore going to call my loan company and ask for a settlement figure (to confirm – I have worked out roughly what it will be) However…

I was talking to a friend in the pub and he suggested paying off the majority of the loan as soon as the other loan comes in, leaving say £1k outstanding and then leaving it (I have the sort code and account number). He suggested I then call for a settlement figure a month later – the theory being that they will only be able to charge me the one months interest on the balance outstanding (ie the £1k) rather than the current outstanding (just over £15k)

This would lead to another big saving….but would it work? Surely if it did everyone would do it – is this just pub drivel? It’d would be great if it was true!! :T

Any advice/thoughts/comments – is this “scam of the month” or is my mate way off track?

Do banks calculate the one month’s interest penalty on the current balance outstanding, or on the original loan amount (in which case I need to recalculate my redemption figure :mad: )?

Thanks for your help!

CLAPTON

what are the T&Cs about overpaying ?

nomoneytoday

If you can overpay on your old loan without penalty then

asterisk_2

I posted almost the same question yesterday on the secured loans forum but not yet had a response. We had a £16k secured loan over 10years, which we're looking to repay 6 years early but the lender has stipulated that we must pay an additional £1,600 for early redemption charges calcuated on what they would have received in interest if the loan ran to the end of the term. I've read somewhere that to avoid redemption charges we could pay the bulk of it and leave a small amount outstanding. Has anyone else come across this?

Also, I phoned the lender last week and said I was thinking about making a payment to clear the bulk of the loan and asked what would happen to the balance - I was told it would just be cleared early by my normal monthly repayments and there was no mention of redemption charges kicking in. Did this person not know what they were talking about -I'd hate to do it and then find out they can hit us with penalty interest anyway because the loan has been paid off early?

Please, please is there anyone out there who can advise?

Rhizee

Sorry for the reply delay – crisis @ work and ended u working late. Even missed the start of the Eng/Brazil Game!!

Well – I've read my T&Cs, but it's still not clear – the only bit that mentions early redemption says:

“If you settle the loan early the settlement amount that you pay would be as follows, per £1000 borrowed:
a quarter of the repayment period has passed: £765.05
a half of the repayment period has passed: £553.85
three quarters of the repayment period has passed: £300.44”

It then says that rebates of unearned interest are calculated via the formula set out in the Consumer Credit 2004 regs, and to contact them for a “more detailed and up to date settlement figure”.

What the **** does that mean?? Is the "amount borrowed" the outstanding balance, the original £20k or the £20k plus the 60 months interest??

CLAPTON

its a good formula .. it means what it says although it only gives three examples but the principles are OK.

but it doesnot say anything about overpaying which is the key issue here./

Rhizee

Sorry forgot to mention...The T&Cs say nothing about ovepaying at all! This could be good!!:beer:

CLAPTON

or it could be bad or anything in between ..you need to know this before proceeding

Rhizee

If it doesn't say in the T&Cs, how can I find out?