Cancelling Minor Damage Insurance added to Loan?

nufcac

We have just bought a car. Initially we wanted the Minor Damage Insurance (MDI), but when seeing the exclusions decided to cancel.


We put down a decent deposit with the balance borrowed. Initially the MDI premium was added to the total price. The dealers then subtracted out deposit leaving the remaining balance to be financed.


When we notified we wanted to cancel the MDI, the dealer said they would discount the premium from the deposit.


However, as the MDI premium was added to the finance, we are going to have to pay interest on it for the full loan term.


The insurance policy states we can cancel within 30 days without penalty. However, we would be penalised by the interest due to the premium having been added to loan?


Has anyone else experienced this?


Cheers.

Car_54

If I understand you correctly, the dealer has reduced the deposit, so the amount borrowed has not changed.

Therefore you have not been penalised!

nufcac

Say the car cost £9500 and the MDP cost £500, the total we would owe is £10,000.


We put £3000 deposit down, which the dealer takes off the £10000 = £7000 left to pay.


£7000 is borrowed at 10% interest. This includes the MDP which is clear in the dealers paperwork.


Therefore, we are paying 10% on £500 policy = £550. But by taking it out of the deposit, we only get £500 back, therefore we are down by £50.


The value of the loan isn't going down despite the fact we are borrowing less.


Had we not gone for the MDP initially, our deposit would have remained at £3000 but the amount we owed would be £6500. Therefore we would be paying less interest on the loan.


The MDP policy states we would not be penalised therefore, after cancellation the costs we have to pay should revert back to what they would have been had we not taken out the MDP in the first place.


All they are doing is reducing the deposit percentage contribution, but keeping the loan at the same level.

Billy_Bullocks

What have the garage said about that?

nufcac

All they have said is that's the way its done and we wouldn't get any more money.

Car_54

nufcac wrote: »

Say the car cost £9500 and the MDP cost £500, the total we would owe is £10,000.


We put £3000 deposit down, which the dealer takes off the £10000 = £7000 left to pay.


£7000 is borrowed at 10% interest. This includes the MDP which is clear in the dealers paperwork.


Therefore, we are paying 10% on £500 policy = £550. But by taking it out of the deposit, we only get £500 back, therefore we are down by £50.


The value of the loan isn't going down despite the fact we are borrowing less.

But you're not borrowing less, you're still borrowing £7,000, with a lower deposit!

If you really only want to borrow £6,500 then tell the dealer and he'll have to get the agreement changed.

nufcac

Yes but the issue is, the dealer has added the MDP premium to the loan, therefore by cancelling the MDP they should automatically recalculate the finance, but they aren't. They are reducing the deposit which leaves us out of pocket.

By adding it to the finance which is much more complicated to amend because it is with a third party the dealer has created a situation which in in conflict with the terms and conditions of the MDP.

scotsbob

You have an insurance policy which you now realise does not meet your needs. You exercise your right to cancel the policy.


If the dealer refuses to do this, or does so without amending the credit agreement, then you contact the Financial Ombudsman and copy to Trading Standards.


My guess would be the dealer would very quickly sort things out at that point.


.

rs65

Can you immediately make an overpayment of £500 to the finance?

Your deposit remains the same, although £2500 to the dealer and £500 to the finance company. Finance returns to what you wanted.

nufcac

Thanks everyone, we went to the dealer again yesterday and explained that as the paperwork states the insurance had been added to the finance, we expect them to rearrange the finance rather than refunding deposit. They have said they are going to contact finance company to try and arrange it.


Thanks Again!