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HSBC Error in Calculating Settlement Figure
thegaffer8
Posts: 5 Forumite
in Loans
HI All,
I took out a loan in March 2015 with HSBC. The loan lasted for 5 years, and I have been paying back ever since.
At the start of my loan, the total amount was debited my loan account, and then each payment has since been taken off this total.
Simple version: I have had HSBC's money for 23 months of a 60 month loan, and even with a 29 day interest fee (HSBC policy) for early repayment, I still have only had 24 months worth of their money.
Complicated version: In October and December, I made one payment of £2000 off my loan, which was taken off the total outstanding amount in my loan account. However, these early lump sum payments did NOT reflect any interest savings. So, today when I called for settlement figures, HSBC have calculated that I have made 37 payments, and am therefore due back interest on the final 22 payments of the 60 month loan, even though I have not had their money for 37 months. In effect, I would have been significantly better off by keeping those two lump sum payments until now, and using it to pay off my loan early at this point. IF I had done this, my interest back today would be £905.92, but because I paid them these two payments, it's only £585.87.
HSBC have insisted I am gaining all relevant interest back, however they have effectively charged my interest for 60 months, on a loan that is only going to last for 47 months, and then refund me on the 23 months left of that loan, meaning they pocket the interest on the extra 13 months payments that were made on one day.
Does anyone have any advice on how to proceed. HSBC's loans department have said there is nothing they can do about it as it's all calculated by their system using the Consumer Credit Act 2004 (Early Repayments) formulae. I used this formula to calculate my early repayment, and can confirm they have used the fact that there are only now 23 payment months left to apply to the section "The amount of the rebate is the difference between the total amount of the repayments of credit that would fall due for payment after the settlement date if early settlement did not take place..." found on legislation.gov.uk/uksi/2004/1483/regulation/4/made , even though had I not paid the £4000 early, there would actually be 36.
HSBC don't seem to understand the logic of it all. They tried to say that it's right because my interest is front loaded, and so my £4000 went towards paying off more of the interest. However, if that were the case, then my outstanding balance at the time of those payments, would have reflected a reduction in my overall interest bill by 7.3 months each time (the amount that my payments were reduced by as result of paying £2000). It did not do this, it only went down by the amount paid and therefore never affected the interest still to pay.
I know I am right about this, but I can't seem to get HSBC to understand why.
I offered a solution in that they refund me by £4000 today. And recalculate my settlement figure today based on still owing all of that. They agreed that IF they did this, my interest refund WOULD be £905.92 and NOT the £585.87 they have offered, BUT that they cannot refund these payments, and in any case the system must still be correct.
Any advice people? Thank you in advance, greatly appreciated.
I took out a loan in March 2015 with HSBC. The loan lasted for 5 years, and I have been paying back ever since.
At the start of my loan, the total amount was debited my loan account, and then each payment has since been taken off this total.
Simple version: I have had HSBC's money for 23 months of a 60 month loan, and even with a 29 day interest fee (HSBC policy) for early repayment, I still have only had 24 months worth of their money.
Complicated version: In October and December, I made one payment of £2000 off my loan, which was taken off the total outstanding amount in my loan account. However, these early lump sum payments did NOT reflect any interest savings. So, today when I called for settlement figures, HSBC have calculated that I have made 37 payments, and am therefore due back interest on the final 22 payments of the 60 month loan, even though I have not had their money for 37 months. In effect, I would have been significantly better off by keeping those two lump sum payments until now, and using it to pay off my loan early at this point. IF I had done this, my interest back today would be £905.92, but because I paid them these two payments, it's only £585.87.
HSBC have insisted I am gaining all relevant interest back, however they have effectively charged my interest for 60 months, on a loan that is only going to last for 47 months, and then refund me on the 23 months left of that loan, meaning they pocket the interest on the extra 13 months payments that were made on one day.
Does anyone have any advice on how to proceed. HSBC's loans department have said there is nothing they can do about it as it's all calculated by their system using the Consumer Credit Act 2004 (Early Repayments) formulae. I used this formula to calculate my early repayment, and can confirm they have used the fact that there are only now 23 payment months left to apply to the section "The amount of the rebate is the difference between the total amount of the repayments of credit that would fall due for payment after the settlement date if early settlement did not take place..." found on legislation.gov.uk/uksi/2004/1483/regulation/4/made , even though had I not paid the £4000 early, there would actually be 36.
HSBC don't seem to understand the logic of it all. They tried to say that it's right because my interest is front loaded, and so my £4000 went towards paying off more of the interest. However, if that were the case, then my outstanding balance at the time of those payments, would have reflected a reduction in my overall interest bill by 7.3 months each time (the amount that my payments were reduced by as result of paying £2000). It did not do this, it only went down by the amount paid and therefore never affected the interest still to pay.
I know I am right about this, but I can't seem to get HSBC to understand why.
I offered a solution in that they refund me by £4000 today. And recalculate my settlement figure today based on still owing all of that. They agreed that IF they did this, my interest refund WOULD be £905.92 and NOT the £585.87 they have offered, BUT that they cannot refund these payments, and in any case the system must still be correct.
Any advice people? Thank you in advance, greatly appreciated.
0
Comments
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The interest is not front loaded, but you do pay more interest at the beginning than the end, due to the higher capital.
If you post a clear break down of loan, rate and the schedule of payments, someone may be willing to do the calculations for you.0 -
Thank you.
Initial loan: £15,000 on 22/03/15
Interest rate: 3.9%
Loan debit: £16,509.87 (including 60 months interest of £1509.87)
First payment: £274.84 on 29/04/15
Subsequent payments: £275.17
Total regular payments made: 23
Total of regular payments made: £6328.58 (including first payment)
Overpayments: £2000 each on 28/10/16 and 31/12/16
Total now paid £10,328.58
Outstanding if no overpayments: £10,181.29 (assuming 60 month loan).
Number of months of full loan term remaining: 37
I hope I have given enough information to help? And thank you.0 -
Based on that, I make your current balance around £5,854. What early settlement figure are they giving you?0
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Current balance before repayment of interest? £6181.29
Early settlement figure of £5,595.42 though if I had NOT made two early repayments (£4000) three months ago, it would have been £9275.37 today, which means I'm losing £320.05 in interest by having made those payments.
Long story short: I am only 40% (2nd year of 5, with the 29 days extra taken into account) into the term, with 60% still to go, but am being offered only a 38% interest refund instead of 60%.0 -
thegaffer8 wrote: »Current balance before repayment of interest? £6181.29
Early settlement figure of £5,595.42 though if I had NOT made two early repayments (£4000) three months ago, it would have been £9275.37 today, which means I'm losing £320.05 in interest by having made those payments.
Long story short: I am only 40% (2nd year of 5, with the 29 days extra taken into account) into the term, with 60% still to go, but am being offered only a 38% interest refund instead of 60%.
It would have cost around £9,646 for current settlement had you not made those overpayments. Your settlement figure of £9,275 is not correct - where did you get it from?
EDIT: bolded bit in quote. You do realise (as zx81 noted in his first reply) that the interest is not charged evenly over the course of the loan? You owe more at the beginning so more interest is charged - conversely, towards the end of the loan, you owe less overall hence less interest is charged.
In my calculation I agree with zx81's balance (at 28th Feb) and indeed your quoted settlement figure at about today's date.0 -
The issue is that 40% of payments doesn't clear 40% of the total amount payable, as the interest is higher in the early months. ie in you first payment of £275, around £48 of that was interest. In this month's payment, only £18 is interest.
So the overpayments have between taken into account, and saved you interest along the way.0 -
I had calculated it based on the interest portion of my loan paid each month being £25.1645 (this was given to me by HSBC staff), and therefore 36 months of this (£905.92) taken off the would-be outstanding amount of £10,181.29.
How did you calculate £9646? Perhaps your calculation will help me to understand better.0 -
They've mis led you - interest isn't a fixed amount each month.
To calculate it yourself, the 3.9% rate equates to around 0.3191% per month. On £15k, that's the best part of £50.
You need to do your calculations based on the capital outstanding, not future interest.0 -
That's not how it works. The interest you pay each month goes down as your outstanding balance decreases.thegaffer8 wrote: »I had calculated it based on the interest portion of my loan paid each month being £25.1645 (this was given to me by HSBC staff), and therefore 36 months of this (£905.92) taken off the would-be outstanding amount of £10,181.29.
How did you calculate £9646? Perhaps your calculation will help me to understand better.
Based on your figures...
Initital outlay £15,000 at 3.9% (say 0.325% per month) and monthly payments of £275 (for ease):
After 1 month your balance would have risen by £48.75 (0.325% of £15,000) and your payment of £275 would reduce your balance to £14,773.75.
After 2 months your balance would have risen by £48.01 (0.325% of £14,773.75) and your payment of £275 would reduce your balance to £14,546.76.
After 3 months your balance would have risen by £47.28 (0.325% of £14,546.76) and your payment of £275 would reduce your balance to £14,319.04.
... and so on. Without overpayments you'd still have to repay £9,605.91 plus 58 days' interest.
Putting in the £2,000 overpayments at month 6 and month 8 (by changing your payment to £2,275 for those months) shows your outstanding balance would be £5,392.74. They're allowed to add on 58 days (say 2 months for ease) interest, which would be about £35, and I make your settlement figure should be £5,427.85.
I also agree with zx81's amount."Facism arrives as your friend. It will restore your honour, make you feel proud, protect your house, give you a job, clean up the neighbourhood, remind you of how great you once were, clear out the venal and the corrupt, remove anything you feel is unlike you... [it] doesn't walk in saying, "our programme means militias, mass imprisonments, transportations, war and persecution."0 -
Hopefully this link will work (and assuming you can open an Excel file!):
http://www.mediafire.com/file/jgw1cb05qjbjuc2/thegaffer8_Loan.xlsx0
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