Confused over settlement figure

perdusys

iancrt wrote: »

The loan is not 'flexible'. They basically calculate all the interest that will be charged over the life of the loan, added it on and your agreement is to pay back this total amount.
They cannot refuse you paying it back early, but they don't have to refund any of the interest they would have expected.

If its about reducing outgoings, making a part re-payment they will re-caclculate the remaining debt over the remaining term so this may work ok for you.

However I don't think you will see any goodwill with only 18 months of the loan left. There's only about £200 of interest left assuming they got the 7.9% rate.

How does that stack up against it being illegal to front load all the interest on an unsecured loan? as I said, I'm confused about that!!

iancrt

They haven't 'front loaded'. Front loading is:
Borrow 6k. interest over 5 years will be £1235. You start paying £120 a month, with the first 10 months used to pay off the interest, so after 10 months you still owe the £6k. This practice was stopped for most unsecured lending - though there are many ways around it especially in the HP market
What Moneyway (who are foremost a HP lender) seem to do is:
Borrow 6k, interest over 5 year is £1235. You agree to pay back £7235 within 5 years. Basically you are saying 'lend me £6k and I will pay you an extra £1235', not 'lend me £6k and I will pay you 0.02% on what I owe you each day'
They do not rule out a rebate on the £1235 'charge' on early repayment, but its unlikely now at this stage of the loan. Even flexible loans will say within the last quarter of the term full amount is usually payable.

To be fair to Moneyway, all this is very clear on the website. whether it was 3.5 years ago and whether your Son understood what he was agreeing to I have no idea.

However you are so far into this loan its not worth worrying about. If this was a daily interest flexible loan, at this point with 18 payments of £121 (£2178) left you would owe just under £2000 in capital, and have about £120 of interest left to pay. [ROUGHLY]

perdusys

I have to say its a very fine distinction, but I understand the difference between front loading now!!

It seems his best way of reducing his payments would be to try and get a loan to repay the remaining £2600 even though this would be extending the period of his credit, it may at least reduce his monthly outgoings.

iancrt

very fine distinction!

ah. no. A new loan is probably a bad idea. Such a low amount will be a higher interest rate and is probably not going to be offered for much longer than the 18 months you have.
I suggest you get onto the Debt Free board with a SOA and a bit of background. Its a bit 'tough love' on there but they know their stuff!

see where you are really, then what you can cut out / reduce
Then decide the best solution.

in2deep_2

I found this calculator to be most useful when looking at your settlement figure.

http://www.financecalcs.co.uk/smartcalcs/Settlement.php

puglet

I just withdrew from a loan under my rights of withdrawel s66 of the Consumer Credit act. I was horrified after the loan was drawn to find that the interest was front loaded (whole term interest added to the capital balance). This practice should be outlawed! Worse still, it was a restricted use credit agreement (debt consolidation) and when I withdrew the initial answer from the bank was that they would not be returning the funds they took to pay out existing facilities. A double blow was that it inflated my true debt on my credit report putting me in a far worse position than the reality.

When did interest stop becoming a function of time?! The Banks must be inflating their balance sheets big time by doing this. Worst thing is you have to ring up for a credit adjustment if you pay in a lump sum?? All loans should be interest calculated daily on the principal balance and debited on the anniversary (payment due) date.

Shop around and read T&Cs extremely closely....if they say all the interest is added to the balance from day one then AVOID!!

In response to this query, they are trying to pull a fast one on you. The most they can charge in interest on early settlement is around 58 days of interest max (can be no more that 1% of the outstanding principal balance). Read the Consumer Credit Act 1974.

jonesMUFCforever

puglet wrote: »

I just withdrew from a loan under my rights of withdrawel s66 of the Consumer Credit act. I was horrified after the loan was drawn to find that the interest was front loaded (whole term interest added to the capital balance). This practice should be outlawed! Worse still, it was a restricted use credit agreement (debt consolidation) and when I withdrew the initial answer from the bank was that they would not be returning the funds they took to pay out existing facilities. A double blow was that it inflated my true debt on my credit report putting me in a far worse position than the reality.

When did interest stop becoming a function of time?! The Banks must be inflating their balance sheets big time by doing this. Worst thing is you have to ring up for a credit adjustment if you pay in a lump sum?? All loans should be interest calculated daily on the principal balance and debited on the anniversary (payment due) date.

Shop around and read T&Cs extremely closely....if they say all the interest is added to the balance from day one then AVOID!!

In response to this query, they are trying to pull a fast one on you. The most they can charge in interest on early settlement is around 58 days of interest max (can be no more that 1% of the outstanding principal balance). Read the Consumer Credit Act 1974.

Better to start your own thread with this - which bank and what type of loan is it?