Help understanding a HPI settlement figure

djwood1

Hello,

Dunce hat firmly on and ready!

Hoping you can help as I've never had a loan / HP before and need some clarification regarding the settlement figure I've received.

So, I purchased a Mercedes 6 months ago. Dealer stated that if I took £7500 on HP / Finance I could qualify for £1k discount. Rest of the car was purchased with cash with the intention of clearing off the finance in 6 months, when I was eligible to do so.

Amount of credit: £7500
APR: 10%
No. Payments: 48
Payment amount: £188.42

So I've paid my 6 payments (£188.42 x 6 = £1130.52) and my settlement figure is £6831.10

I assumed it would be £7500 - £1130.52 = £6369.48

Mercedes finance told me there's an early fee which is hidden within the monthly cost and they don't know what it is. I can go to the consumer help line via Citizens Advice to find this out?

T&C's don't mention any early cancellation fee nor did the salesman when I queried.

Surely it can't be £462 fee?

What am I missing?

Thanks!

foxy-stoat

A couple of months worth of interest and the fee.

Who is the lender?

djwood1

It's Mercedes-Benz finance.

Is it because the interest is front loaded?

@ 0% £7500 = £156.25 p/m
Mercedes payment at £188.42 - £156.25 = £32.17 p/m interest.

I assume it's not as simple as that am I'm missing something obvious?

foxy-stoat

djwood1 wrote: »

I assumed it would be £7500 - £1130.52 = £6369.48

You assume wrong, you have not taken into account the interest that you would of paid within your £1130.52 for the last 6 months, plus upto 2 months interest they can charge plus any fees.

Have you still got the paperwork when you took out the finance, they will cover how to terminate the agreement, including fees and charges.

djwood1

Thanks for the info so far.

The paperwork is rather vague, here's what it mentions.

Right of withdrawal
Once you have signed the agreement, you will have the right to withdraw from the agreement without giving any reasons within the specified period. This period will end after the 14th calendar day, counting from the day after you sign the agreement. If you wish to withdraw, you should write or telephone MB Finance. You will then be liable to repay the amount of credit to us without delay within 30 days together with interest at the rate of £1.95 per day from the date of this signed agreement until the date you repay the credit.

Early Repayment
You have the right to repay early the amount you owe under this agreement in whole or part. If you wish to do so, you should write to MB Finance / telephone


So do I assume they've charged 6 x months of front loaded interest / £1.95 p/day?

Thanks

djwood1

Online repayment / settlement generator states the following:

The early settlement quotation for your agreement number xx is as follows:

• Balance Outstanding £7,923.64 as at 1 Feb 2016
• Amount of Rebate £1,092.54 this rebate amount has already been deducted in arriving at the early settlement figure below
• Your early settlement quotation of £6,831.10 is valid from 1 Feb 2016 until 29 Feb 2016

foxy-stoat

http://www.thisismoney.co.uk/money/cardsloans/article-1633405/Loan-repayment-calculator.html

Try putting in £7500 over 6 months at 10%

Total you would pay is £7720.26, so the difference by the looks of it is £241.36, which could be 2 months interest plus a cancellation fee.

Although there is no way of knowing as for MB finance, as with most lenders, you have to call them for a quotation. It would also depend on the day you want to cancel and the day that your last payment was.

Nearlyold

Your payments and interest would look something like this (approximate back of a fag packet calculation)

Amount borrowed:- £7500
1st months interest £62.50 (1/12 of 10%)
Less 1st Payment £188.42
Amount owing £7374
2nd months interest £61.45
Less 2nd Payment £188.42
Amount Owing £7247
3rd months interest £60.39
Less 3rd Payment £188.42
Amount Owing £7119
4th months Interest £59.32
Less 4th Payment £188.42
Amount Owing £6990
5th months Interest £58.25
Less 5th Payment £188.42
Amount Owing £6860
6th months Interest £57.16
Less 6th Payment £188.42
Amount Owing £6728
Plus early settlement interest charge of up to 2 months interest £112 would be £6840 which is pretty close to your figure and exactly what you would expect.

Remember because you owe more at the beginning you pay more interest at the beginning and less at the end. This is how ALL loans work and its not Front Loading

Nearlyold

foxy-stoat wrote: »

http://www.thisismoney.co.uk/money/cardsloans/article-1633405/Loan-repayment-calculator.html

Try putting in £7500 over 6 months at 10%

Total you would pay is £7720.26, so the difference by the looks of it is £241.36, which could be 2 months interest plus a cancellation fee.

Although there is no way of knowing as for MB finance, as with most lenders, you have to call them for a quotation. It would also depend on the day you want to cancel and the day that your last payment was.

The above method won't work because the OP's monthly payments are not going to clear the loan in 6 months. His/her monthly payments are £188.42 not £1286.71

Nearlyold

djwood1 wrote: »

Thanks for the info so far.

The paperwork is rather vague, here's what it mentions.

Right of withdrawal
Once you have signed the agreement, you will have the right to withdraw from the agreement without giving any reasons within the specified period. This period will end after the 14th calendar day, counting from the day after you sign the agreement. If you wish to withdraw, you should write or telephone MB Finance. You will then be liable to repay the amount of credit to us without delay within 30 days together with interest at the rate of £1.95 per day from the date of this signed agreement until the date you repay the credit.

Early Repayment
You have the right to repay early the amount you owe under this agreement in whole or part. If you wish to do so, you should write to MB Finance / telephone


So do I assume they've charged 6 x months of front loaded interest / £1.95 p/day?

Thanks

You're not withdrawing from the agreement, you can only withdraw in the first 14 days - you are making an early repayment

djwood1

Hi Nearlyold

Thanks for the breakdown, it's really helped me to understand the agreement / settlement figure.

Having never had a loan I didn't give any thought to paying additional interest in the first instance, seems obvious considering the initial figure is the highest. So, as a result the interest is reducing every month.

Thanks for taking the time to help :-)