Car Loan

Pipz

Good afternoon all,

I recently purchased a vehicle and elected to take a Hire Purchase agreement out for £9999.00 over 5 years.

I'd like confirmation on whether or not I've got the right idea of the effect of overpaying on the loan (8% Fixed, 16.2% apprx APR, £236.81 monthly repayments).

The arranging company is Clydesdale Finace trading as Barclay's Partner Finance, when I spoke to them they advised that overpaymetns could be made free of charge and will reduce the term of the loan.

If I reduce the term say by a year through overpayments, is a year's worth of interest then rebated at the end of the agreement?

Any thoughts on the matter appreciated, I don't have the agreement to hand at present but can update on specifics when at back at home this evening.

Thanks

nomoneytoday

It will all come out in the wash. As you owe less there will be less interest charged on the outstanding balance

Pipz

Many thanks!

Pipz

Another quick question on repayment strategy, as the total balance includes all the interest over the 5 year term rather than interest calculated daily, is it better to:

1. Overpay monthly or,

2. Save the overpayments in an interesting bearing account and then use this amount to overpay the loan when savings balance = value of remaining term.

To clarify, I can work out this value as the monthly repayments are fixed, I believe I simply divide my savings by £236.81 to get a rough idea of how many months they would reduce the term by. When this figure = my term remaining then I overpay.

I thought Opt 2 might be better as the savings will gain interest and the loan agreement is already fixed

When I phoned Barclay's PF they mentioned front loaded interest a considerable amount.

Many thanks

CLAPTON

16.2% APR is a pretty shocking rate of interest


the only way of knowing how overpayments are treated is to read the T&Cs of the loan.

most call centre staff don't understand the products they support.


but in general, if the loan payments are applied immediately to the capital amount owing and the interest calculated on a daily basis, then the sooner you overpay the better.

redpete

As a general rule if you pay £1 off today instead of tomorrow it will save more interest. This is true for all loans that charge interest on a daily basis; you need to check the basis for charging interest on your loan.

The amount you could earn in a savings account is irrelevant compared to the 16.2%.

Pipz

From what I can see they've worked out the interest charge over the 5 years (8% fixed), added it to the amount of credit, added arrangement and completion fees and then divided it by the number of months in the term to give the monthly repayment.

If the interest has been caluclated in this way rather than daily, would a regular overpayment strategy still be best? I believe there would be an interest rebate at the end of the agreement if it finishes earlier than the 60 month term.

I'll get in touch with the finance company and see if I can extract more information.

Overpayments don't attract charges but a full settlement will do so.

Thanks for bearing with my questions!

redpete

Pipz wrote: »

From what I can see they've worked out the interest charge over the 5 years (8% fixed), added it to the amount of credit, added arrangement and completion fees and then divided it by the number of months in the term to give the monthly repayment.

If the interest has been caluclated in this way rather than daily, would a regular overpayment strategy still be best?

That's how they work out the monthly payments - on the assumption that you pay the normal monthly amount for the duration of the loan. You need to understand how they apply the interest to the outstanding balance - e.g. calculated on the daily balance and added monthly.

Overpayments don't attract charges but a full settlement will do

In which case it's probably worth overpaying as soon as you have the money available.

Pipz

I've just had a look at the agreement and the only the only reference to how the interest is calculated is:

"This is a flat rate of interest, which means the amount of interest you must pay is worked out as a percentage of the original credit amount'.

Incidentally I had applied for a personal loan of the same value with a view to pay off one product with the other if one was substantially cheaper.

The personal loan's wording states the interest is calculated 'on a daily basis on the amount of credit outstanding'.

I'll give Barclay's a call today and see if I can get more info from them.

Pipz

Happy New Year all!

Just a quick update on the saga

1. I sought a cheaper means of borrowing to replace the HP and opted for extending the mortgage, my bank informed me this was fine and started the process.

2. I cancelled the finance agreement.

3. My bank told me it they couldn't do it after all _pale_

4. I'd applied for a personal loan for the same amount just after taking out the HP as I read it this option could sometimes be cheaper.

5. It was by 1%, thankfully I hadn't thrown the paperwork in light of point 1. Signed and sent it and the loan came through.

6. Paid off the HP with the Loan, then read on MSE that loyalty with your own bank doesn't necessary mean best rates but is more likely to mean acceptance.

7. Did some scouting and got accepted for a loan for the same amount but at 7% :T. Signed and sent paperwork.

8. Loan came through this morning, phoned up bank and paid off the 14% loan. Despite it being 1 day out of the 14 days cancellation policy, my bank only took the amount borrowed as payment and waived any other charges

9. Now lying low as the Credit profile has taken a few dents, however quite happy with the end result and looking forward to making over-payments in 2014!