paid loan early but had to pay all future interest

grahamtabby

Hi all,
My wife and i had a loan about 15 years ago which I think was secured against the house, we had bad credit at the time and I cannot remember the company it was with.

We remortgaged several years before the loan was due to finish and I assumed we would get some money back from the interest of paying the loan early, NOT SO we were told that in the loan terms it stated that if the loan was paid early we had to pay the full balance including future interest.

Being naive we assumed this was true but now as I hear about dishonest banks overcharging etc, I am wondering if I can claim that interest back. I think the interest would have been about £2000 so well worth looking into.

My questions are 1) have i left it way too late?
and 2) is there anywhere I can get details of my loan history eg. experian so I can find out which company it was with as it was done through a broker who came to our house. I seem to recall it was a company who advertised alot on TV

any help/advice would be appreciated.:beer:

Thrugelmir

Interest is calculated on the outstanding balance. As the debt decreases you pay less interest. So in effect every month you progressively pay less interest and more capital. By the end of the loan term you'll be paying more or less capital only.

In settling early there's no rebate of interest paid as such. The interest was due.

A common misconception as to how loans work.

grahamtabby

so if for example I borrowed £5000 over 5 years and was paying £125pm for 60 months totalling £7500. if I paid the loan early I would still have to pay the £7500???

If interest is calculated on the outstanding balance how can they make me pay for future interest if i pay the loan early and no longer owe them money. the example above is what happened (amounts may have been different)

grahamtabby

when i say pay off early I mean about less than half way through the loan.

Thrugelmir

A £5k loan over 5 years ( 60 months ) at 10% interest would equate to monthly repayments of £106.24.

After 30 months you would still owe £2,809 of capital.

So despite making 50% of the repayments you would still owe 56% of the original advance.

In total after 30 months it would cost in the region of £6k to borrow the original £5k.

In the remaining 30 months there's only £378 of interest left to pay.

adouglasmhor

Thrugelmir wrote: »

Interest is calculated on the outstanding balance. As the debt decreases you pay less interest. So in effect every month you progressively pay less interest and more capital. By the end of the loan term you'll be paying more or less capital only.

In settling early there's no rebate of interest paid as such. The interest was due.

A common misconception as to how loans work.

I thought on reading the OP they had been charged interest on the whole agreed life not the period up to settlement.

grahamtabby

adouglasmhor is correct, we paid the full amount including what the interest would have been to the 60th month , so in thrugelmir's example we would have paid £6378 instead of £6000.

Eonel

Thrugelmir has correctly pointed out the way the vast majority of loans work. Interest rebates are generally not due with early settlement, which can lead to the misconception that future interest has been paid.

Graham - do you know any more details on amount borrowed, term, APR and date/amount of final settlement so we can verify the calcs.

grahamtabby

no, sorry, i was going to get advice from you guys before going down the experian route to track down the loan company and ask them for a copy of my terms. I might be able to dig out old bank statements to see how much we were paying per month and who to, but without the amount borrowed, term and APR that would be pretty useless to calculate how much we overpaid.

My wife has just remembered the broker was ocean finance (doubt that helps with your advice)

The reason I think we overpaid is because this was the second loan we took with Ocean, the first one we paid off early with this one and we got some money back on the first loan but not on this one?

Would Ocean finance be under any obligation to provide coppies of contracts if I request it and pay an admin fee?

PeacefulWaters

A few thoughts.

1. Are you absolutely sure you've paid the full amount that would have been payable had the loan run its full term? I suspect it will have been a variable rate so this surprises me.

2. Are we talking more than 15 years ago? If so, google "statute of limitations".

3. You can ask them to provide detail. If you do I would ask them the specific question about the breakdown of early settlement charges compared to what would have been paid had the loan run its term.

My instinct is that while there may have been a hefty early settlement charge you won't have paid the full amount due over the remaining term. So you might be on a wild goose chase.

How much was borrowed over what term and at what rate? How far in were you when you terminated? What was the settlement figure?

grahamtabby

I seem to recall we were advised by the Ocean finance broker that we stood a better chance of securing a loan if we took it with PPI, so could go down that routel.

Whilst I am in recalling mode I seem to remember the Ocean finance advert.... A sailing yacht in beautiful clear water, probably sailing off the coast of Somalia with the other pirates.