Worried & confused about Secured Loan!!

Rock2000

I have been looking into the paperwork about a joint secured load my husband took out in Aug 2013. The day before we exchanged on a new house we found out we were short on our deposit! Big f-up on our solicitors part! Anyway we had to borrow money from a family member & then took out a loan to pay them back - we also borrowed a bit more for the house & we were under the impression we would have a fair bit after the house sale! Anywho, I believed it was the usual borrow X amount with X amount of interest on top paying back the totally amount at X per month for X amount of years. But when I saw our statement I was confused it showed a debit amount along with the credit amount & balance - the debit amount I am assuming is the interest per month which changes in amount each month! I am totally confused by this! I don't have much experience with loans but I have taken a couple out & paid them off over the years but I haven't come across this....

Also looking at the T&Cs, it's called a 'Fixed-Sum Loan Agreement' but one part says 'APR 14.9% (variable)' & then another part says 'interest rate 11.4% (variable)' this is also confusing me! I also thought it was a fixed sum so how come the rate is variable?? Does this mean it could go up & may pay back more than we thought??

antrobus

Rock2000 wrote: »

...Also looking at the T&Cs, it's called a 'Fixed-Sum Loan Agreement' but one part says 'APR 14.9% (variable)' & then another part says 'interest rate 11.4% (variable)' this is also confusing me! I also thought it was a fixed sum so how come the rate is variable??....

A 'Fixed-Sum Loan Agreement' is simply an agreement to loan a one-off fixed sum of money which is then repaid, as opposed to a running account arrangement, like an overdraft or a credit card.

Presumably, your lender is charging you 11.4% on your loan, and that is equivalent to an APR of 14.9%.

Rock2000 wrote: »

... Does this mean it could go up & may pay back more than we thought??

Yes, it could. The rate is variable.

Apples2

That's exactly what variable means.

Borrowers see variable and think it will go down.
Lenders put variable so it can go up.

If you had posted the real figures it would help.

redpete

Rock2000 wrote: »

when I saw our statement I was confused it showed a debit amount along with the credit amount & balance - the debit amount I am assuming is the interest per month which changes in amount each month! I am totally confused by this!

That bit is easy. Let's say you borrow £1000. At the end of month 1 that £1000 has cost £10 interest and you pay the lender £100. This means the balance is now £910 (£1000 + £10 - £100) The second month you are paying interest on the £910, not the original £1000, so the interest is £9.10 and you still pay £100 to the lender, so at the end of the 2nd month the balance is £819.10 (£910 + £9.10 - £100).

So each month a larger proportion of the amount you pay goes towards paying off the loan and a lesser proportion towards interest.

Also looking at the T&Cs, it's called a 'Fixed-Sum Loan Agreement' but one part says 'APR 14.9% (variable)' & then another part says 'interest rate 11.4% (variable)' this is also confusing me! I also thought it was a fixed sum so how come the rate is variable??

The fixed amount refers to the monthly payment *if* the interest stays the same. It does suggest that the lender could increase the interest rate.
BTW - the difference between the 11.4% and the 14.9% is due to the legal definition of how APR should be worked out - the APR is the most meaningful figure when comparing interest rates between different loans.

Does this mean it could go up & may pay back more than we thought??

Possibly, but I would expect this to happen only when BoE base rates increase.

That seems a pretty high interest rate, especially for a secured loan. I'd be doing everything possible to make overpayments if these are allowed.

PeacefulWaters

11.4% plus lots of fees = 14.9% APR.

Rock2000

Thanks so much for your replies! Let me give you some more details:

So the total loan amount was £15,750 (13,970 cash bal to us, 1,750 arrangement Fee & 30 trans Fee)

On the 1st statement we got it says - 30/09 - credit £201.18 - BAL = 15,548.82
30/09 - interest £157.35 - BAL = 15,706.17

30/10 - credit £201.18 - BAL = 15,504.99
30/10 - interest £147.10 - BAL = 15,652.09

Then the interest amount for Nov goes up to £151.48

Dec - £146.13
Jan - £150.47
Feb - £140.30

So is this compound interest??

Also looking at the T&Cs - it says: amount of credit £14,000 - 144 monthly payments of £201.18. Then in other financial info it says: interest charges - £13,219.92 + broker arrangement fee £1,750 = £14,969.92. So I understand we are paying back £28,969.92 but it does state - "Assuming no changes in interest rates" it also says in the fine print "we may reduce the interest rate for any reason but we are not obliged to" and "the interest rate does not track any other rate such as the BoE base rate" I thought they all had to if it was a variable rate?? So in effect they can charge what they want when they want to?? And if that's the case does this mean that after the 144 month period we may still have an outstanding balance??

CLAPTON

Rock2000 wrote: »

Thanks so much for your replies! Let me give you some more details:

So the total loan amount was £15,750 (13,970 cash bal to us, 1,750 arrangement Fee & 30 trans Fee)

On the 1st statement we got it says - 30/09 - credit £201.18 - BAL = 15,548.82
30/09 - interest £157.35 - BAL = 15,706.17

30/10 - credit £201.18 - BAL = 15,504.99
30/10 - interest £147.10 - BAL = 15,652.09

Then the interest amount for Nov goes up to £151.48

Dec - £146.13
Jan - £150.47
Feb - £140.30

So is this compound interest??

Also looking at the T&Cs - it says: amount of credit £14,000 - 144 monthly payments of £201.18. Then in other financial info it says: interest charges - £13,219.92 + broker arrangement fee £1,750 = £14,969.92. So I understand we are paying back £28,969.92 but it does state - "Assuming no changes in interest rates" it also says in the fine print "we may reduce the interest rate for any reason but we are not obliged to" and "the interest rate does not track any other rate such as the BoE base rate" I thought they all had to if it was a variable rate?? So in effect they can charge what they want when they want to?? And if that's the case does this mean that after the 144 month period we may still have an outstanding balance??

the monthly interest will vary month on month even if the interest rate is unchanged
-there should be a down ward trend as the capital is reducing
-but the interest accumulates on a daily basis: so it will depend upon how may 'days ' in the month (which may not be the number of calender days as it will probably be worked out from a 'working ' day to another 'working ' day and not from the 1st to the last day).

the interest isn't compound.

however, the only real way forward is to see if you can refinance the loan with cheaper finance (lower interest rate) : basically via a remortgage or make over payments (what do the T&Cs say about over payments)?

iolanthe07

I would be very wary of a variable rate interest deal. The interest always only ever seems to vary upwards. As has been said, make over payments if you can.

Rock2000

Oh I agree with variable rate loans! My husband didn't mention that it was & to be honest I don't think he really thought about it - he just wanted to pay back the family member. I was 7 months pregnant with my 2nd at the time. We just moved house so I just let him to sort it all. I have now taken over ALL the family finances after I found out my husband kept going overdrawn on his current account and he doesn't have an authorised overdraft!! **angry face** I did manage to get one months charges refunded as a "gesture of good will"

It does say about early repayment but I don't understand it... It says "you have a right to bring this agreement to an end at any time by making a single payment of the outstanding balance plus all future monthly repayments less any rebate you are entitled to calculated under a formula set out in regulations made under the consumer credit act 1974. For example the amount you would have to pay for every £1,000 borrowed if you wanted to settle the agreement when a quarter of the agreements duration had passed would be £867.75. If half the agreements duration had passed would be £669.68 & if 3 quarters of the agreements duration had passed would be £391.29 - in calculating the amounts shown, no account has been taken of any variation which might occur under the agreement, we assume all payments are paid on time and the notice period of 28 days for settlement has been given. As such the amounts shown are for illustrative purposes only."

Can anyone translate that for me as I have no idea what it means!

redpete

Rock2000 wrote: »

Can anyone translate that for me as I have no idea what it means!

I wouldn't worry about the example numbers they quote.

This is for when you want to pay off all money owed at one go. You contact the lender and ask for a settlement figure - this is the amount you still owe and includes a discount on the amount of interest you would have paid if you just kept on making the monthly payments.

You also need to find out about overpayments - these are amounts you want to pay over and above the standard monthly payment but without paying off the full amount.

Rock2000

Ah ok. Well I didn't see anything about overpayments in the T&Cs... Will have another look. If it doesn't mention them what should I take that to mean? Will they confirm if that is an option over the phone and should we look to pay it all off ASAP? We will be having an appointment with our mortgage adviser in the summer as our 2 year fixed mortgage deal will be coming to an end & we will be looking to remortgage elsewhere. We are thinking about freeing up some equity to spend on home improvements - should we look at getting enough to pay this loan off? We had a very sizeable deposit when buying the house - was about 44%