Is 30% APR too high a rate for an unsecured small loan??

ultimatefighter

Please don't commence by assuming I am an uneducated consumer. I've made an error and I hold my hands up to my original intention.

I purchased a guitar from guitarguitar store and borrowed £4000. The idea was a year of 0% and pay it off however the time lapsed. I work too much to pay for the things I have (not much haha)

On the BARCLAYS PARTNER FINANCE loan it is 12months deferred and 48 months thereafter at 30%. 0% if paid before the year defered payments. However I have called to settle and my "early settlement inclusive of rebate" after one year is £9156.

This loan is for purchasing a non depreciating object yet unsecured. On a small amount there is hardly the risk necessary to recoup more than double the amount borrowed. Even if charged £8000 total payable over 4 years that's still a lot and broken even and 100% gained. This is a dragons den dream. My return will be 100% of original investment over 4 years. Imagine on a huge loan. It's smaller rates. Why large on such a small one?

Would I have a case at court to have the rate adjusted downwards and a recalculation based on unfair terms?

Gaz83

ultimatefighter wrote: »

Please don't commence by assuming I am an uneducated consumer. I've made an error and I hold my hands up to my original intention.

I purchased a guitar from guitarguitar store and borrowed £4000. The idea was a year of 0% and pay it off however the time lapsed. I work too much to pay for the things I have (not much haha)

On the BARCLAYS PARTNER FINANCE loan it is 12months deferred and 48 months thereafter at 30%. 0% if paid before the year defered payments. However I have called to settle and my "early settlement inclusive of rebate" after one year is £9156.

This loan is for purchasing a non depreciating object yet unsecured. On a small amount there is hardly the risk necessary to recoup more than double the amount borrowed. Even if charged £8000 total payable over 4 years that's still a lot and broken even and 100% gained. This is a dragons den dream. My return will be 100% of original investment over 4 years. Imagine on a huge loan. It's smaller rates. Why large on such a small one?

Would I have a case at court to have the rate adjusted downwards and a recalculation based on unfair terms?

I've used guitarguitar quite a few times, never for as much as £4,000 but for amounts up to £1,000. Just to clarify: are you saying that the 12 months have passed, and now to settle the account in full they're looking for this £9,000-odd figure? So they're trying to take the interest that would have accrued over 48 months as well as the principle?

How long is it since the 0% deal ended?

Gaz83

Also: worth pointing out that interest occurs from the date of purchase (but is effectively 'wiped out' if the principle is paid before the 12 month period is up). So £4,000 would become just over £5,200 after 366 days.

ultimatefighter

Hey Gaz. Thank you very much for your reply. It's appreciated.

One principle on the world of our lovely country's finance is the front loading principle. Front loaded interest and on this one, 14 months have elapsed.

I think someone on the end of the phone wants a little too much commission for the telephone call to be honest. Just like Npower who tried to take £190 (usual payment is £57 a month) and admitted it was an "over" estimation. Only SLIGHTLY;) imbecilic.

So yes. Aware that interest is back dated and charged. But to charge me more than double over the first year, I may as well become a lender at those rates and make a killing. Such a large institution should be incredibly competitive. Not over priced and encourage borrowing. What do you think? RBS had to readjust loans rates back in 2009 when unfair terms were a huge focus.

PeacefulWaters

Ring them up again and ask for an accurate settlement figure. Demand it in writing.

Please clarify:

Did you borrow £4,000?
Was it a 60 month loan term?
Is the APR 30% (nil if repaid within 12 months)?
What is the current contractual monthly payment?

If they're asking for £9k to settle after 14 months they've made a mistake.

Is 30% APR too high a rate for an unsecured small loan??

The answer to your primary question is no. The correct rate is the one agreed to by both parties. While I'd have been seeking out a 0% credit card you chose an alternative. The 30% rate subsidises those sensible enough to repay the debt within the 12 month term.

This loan is for purchasing a non depreciating object yet unsecured. On a small amount there is hardly the risk necessary to recoup more than double the amount borrowed.

Even if charged £8000 total payable over 4 years that's still a lot and broken even and 100% gained. This is a dragons den dream. My return will be 100% of original investment over 4 years. Imagine on a huge loan. It's smaller rates. Why large on such a small one?

You have a bizarre view of risk. The risk is you borrow £4,000 and don't pay it back. The guitar could be on stage with an ageing rocker or smashed to pieces in a hotel room. You could have done a runner, lost a job etc. the value of the guitar is irrelevant.

Would I have a case at court to have the rate adjusted downwards and a recalculation based on unfair terms?

None whatsoever.

One principle on the world of our lovely country's finance is the front loading principle

There is no front loading principle. A loan agreement will normally state a total amount payable. A loan statement may start with this as a balance and deduct monthly payments from it. But a loan settlement figure will be based on interest accrued on the (usually reducing) outstanding balance plus a modest additional charge of up to two more months of interest. Your particular loan agreement has an increasing balance in the first 12 months.

At 14 months I'd expect the settlement figure on your loan to be around £5,600 minus any payment made. I suspect the settlement figure of over £9k you refer to has inadvertently double counted the £4k borrowed. Or you've simply misheard the number 5 as the number 9.

Such a large institution should be incredibly competitive. Not over priced and encourage borrowing.

0% interest is incredibly competitive. Banks are in the business of lending money. This is why they want people to borrow it.

Gaz83

It sounds very much like someone at Barclays has made a mistake. Front-loading of interest doesn't really happen but people often mistake their 'total payment' figure (the figure they would repay in total if the loan ran its course) with the settlement figure. It's possible someone at Barclays has mistakenly given you the wrong figure when you've called.

Usually early settlement can include a 'penalty' of roughly two months' worth of interest, but certainly not the interest that would be accrued over the term of the loan.

Worth another phone to them.

As above, I don't think you'd have much luck arguing the APR is unfair as you agreed to it at the time. guitarguitar are very upfront with their fees and APRs through BPF.

Thrugelmir

ultimatefighter wrote: »

Would I have a case at court to have the rate adjusted downwards and a recalculation based on unfair terms?

Write and request a written settlement quotation.

More than likely you've been quoted the amount that you'll end up repaying in total.

jamesd

There is no front loading of interest when it comes to personal loans. You have probably been quoted the total payable if you kept the loan. It would be illegal to charge you that amount if you settle early because the Consumer credit (Early Settlement) Regulations specify that interest has by law to be calculated in effectively the same way as a mortgage and only for the time that the money has been borrowed plus up to roughly a couple of months to cover costs.

There are two ways you can proceed:

1. You can write asking for an early settlement amount. They are required to reply with a value that will be valid for 30 days. That isn't 30 days free, the amount is increased to allow for the time.

2. You can pay them the estimate current balance and they must refund any overpayment. £5200 will be a little higher than the amount, by the capital part of two months of payments, so you could pay them £5200 and expect a small refund. There is no 30 days allowance in this case, you save money because they have to do the calculation for the date at which you actually paid.

For both it may be useful to include the words Early Settlement under the Consumer Credit (Early Settlement) Regulations to help make it clear that you are looking to make a full or partial early settlement, not an advance payment of normal monthly payments.

You did lose the value of the 0% period. That was deferred interest that would have been ignored if you had repaid within the twelve months. Since you didn't you're liable for that 12 months of interest.

Gaz83

Just out of interest OP, what was the guitar?

27col

£4000, it wasn't a Stradivarius by any chance.

Gaz83

27col wrote: »

£4000, it wasn't a Stradivarius by any chance.

I'd much rather have something from the Fender Custom Shop than a Stradivarius!