Mercedes-Benz Finance

BartyBoy

Hi All

Not sure how to start this, so I just go straight to the point.

I bought a Mercedes car from a local Mercedes-Benz dealership back in May 2014. The dealership sold me a £25K loan via their finance scheme. I was told my monthly repayment was £499 for 60 months.

Last week, I received a £10K bonus from work, so I decided to use it to pay off some of the £25K loan. I contacted Mercedes-Benz Finance (MBF) to ask for a quote for a £10K partial settlement payment. MBF got back to me with a quote of £289 monthly payment for 56 months. It works out it will reduce my monthly payment by over £200, I was happy to go ahead with that.

While I phoned MBF to authorise the partial settlement payment, I also asked MBF what my outstanding balance was before this settlement payment. I was told it was £24,204.50. I was a bit surprised with that. So after the phone call, I did some calculations here, but I couldn't quite know how this £24,204.50 was calculated, this is why I thought I should ask the question here.

I borrowed £25K at the end of May, the first repayment was made on 30 June. I have made 3 payments of £499 (or £1,497 in total) so far. If I minus the £25K by £1,497, that gives me £23,503. Then if I minus the outstanding balance (£24,204.50) by £23,503, that gives me £701.50. Am I correct to say that I have been charged £701.50 interest by MBF here?

I know some lenders would fine their borrowers two months interest for settling the loans early. The total interest of the initial £25K was £4,940 over a period of 5 years. I know I cannot just divide this figure into 60 months to work out the monthly interest, but being charged £701.50 for 3 month's interest and a fine (if there is), it seems high to me. (besides, I have never been told there is a fine for a partial or full settlement payment when I applied for the loan with the dealership).

Any suggestions and/or advice are very much appreciated.

Many thanks in advance!

tonyh66

you pay more interest at the start of the loan than you pay off the initial loan, near the end of the loan you pay less interest and more off the loan. I thought you would know that considering the wage you are on.

Tixy

You haven't mentioned an interest rate but based on 25k, 60months and £499 this would suggest an APR of approx 7.35%

If that is correct then the interest for the first 3 months would be £153, £151 and £149 respectively. Giving you a balance at the start of month 4 if £23955.
A settlement figure will usually have 58days interest added, which would be approx £280. Which works out to be roughly the same as what you as the settlement figure you are being given (well yours is a few quid less).

You'd need to check your finance agreement for details of the settlement charges etc.

If you want to see how the interest is charged each month I find this online calculator useful - http://www.theguardian.com/money/loan-repayment-calculator-interest-rates

BartyBoy

Tixy wrote: »

If you want to see how the interest is charged each month I find this online calculator useful - http://www.theguardian.com/money/loan-repayment-calculator-interest-rates

That is great, thank you so much for your message and the hyperlink.

And sorry for not mentioning the APR, on the paperwork it says 8%, but when I use an online loan calculator, it gives me 7.4% based on the £499 repayment.

Once again, thank you for your advice!

thebritishbloke

Just as an FYI, I recently called Citroen to look at paying £4k off of my finance, they said I'd save something like £150 in interest (HP is at 4.9% APR). Instead of doing that, I have it in two TSB Classic Plus accounts paying 5% Gross interest, earning me £200 interest a year.

Just food for thought, you could actually make money by putting this away, especially considering that you've already paid off some of the most expensive interest repayments on the loan already.

BartyBoy

Just a quick update here...

I have received three letters from MBF about my loan with them. I must say I am very confused with the different figures that they have provided to me.

Just a re-cap – I borrowed £25,000 from MBF back in May 2014, the monthly repayment is £499 at 8% APR for 60 months, so far I have paid £1,497 towards to my loan.

On one of the three letters from MBF, it says the outstanding balance is £28,538 as at 18 September 2014. Can somebody kindly explain to me why the outstanding balance is £3,538 more than the initial £25,000? It has only been 4 months since I borrowed the £25,000.

Then on a different letter, MBF gives me an overall capital and interest statement. On this statement, it says after the first repayment was made, the capital outstanding was £24,668.54 and the interest outstanding was £4,772.46, what is this interest outstanding please?

I know by the end of the 60 repayments, the total interest will be £4,940. Does that mean MBF has already charged me the total interest now as a result the outstanding balance is well over the initial £25,000?

From what I understood, I thought I started the loan at £25,000 on Day 1. A calendar month later, MBF would add one-month interest (£167.54) of the £25,000 to my loan then minus my monthly repayment (£499). It works out I should owe MBF £24,668.54 in the second month. When another calendar month went by, a one-month interest of the £24,668.54 was added to my loan and minus the repayment. The same calculation goes on every future month. Am I not thinking it correctly here?

I am so confused here, please help...

Tixy

That interest is what you would pay if you carried on the loan to term.
Some lenders present a statement this way.

If you settle early you don't pay all the interest. Just what is due to date plus usually 58 days settlement.

BartyBoy

Tixy wrote: »

That interest is what you would pay if you carried on the loan to term.
Some lenders present a statement this way.

If you settle early you don't pay all the interest. Just what is due to date plus usually 58 days settlement.

Thank you for your message again, much appreciated!

Besides, I have another question now. As I mentioned before, I am going to do a £10,000 partial settlement payment. I have just phoned MBF asking how they will use this £10,000 overpay payment. I am told on the phone that the £10,000 will be split to pay off the capital and the interest. Is it how an overpay payment is used normally?

I may sound childish here, I thought the full £10,000 would be used to pay off the capital only.