Satsuma Loans - Pre Loaded Interest?

hulsealpah1

I took a loan with Satsuma on 17th August 2017 of £1200 as a short term solution (i had to choose Satsuma due to poor credit history). I was given a 12 month term, £200 / month, totalling £2400.

I had every intention of paying this loan off much earlier and to date have made the following payments toward the account:

31/10/2017 £200.00 Payment - (Additional Payment)
01/11/2017 £199.20 Payment - (Contractual Payment)
30/10/2017 £100.00 Payment - (Additional Payment)
18/10/2017 £100.00 Payment - (Additional Payment)
12/10/2017 £100.00 Payment - (Additional Payment)
29/09/2017 £200.00 Payment - (First Contractual payment)
19/09/2017 £100.00 Payment - (Additional Payment)

I contacted Satsuma to get a settlement figure for my loan which is roughly £750, which taking into account next months payment is £500 interest for less than 4 months.

This seems obscene and I was provided with the below explanation from Satsuma:
Early Settlement rebate only applies to the interest element of the loan and excludes the larger, principal, sum which is always payable in full.

The calculation that we use to work out the rebate is statutorily imposed under The Consumer Credit (Early Settlement) Regulations 2004 and can be viewed at legislation.gov.uk/uksi/2004/1483/regulation/4/made. This is a complex calculation and the systems we use have the formula built into them to ensure that errors are not made.

Satsuma Loans differ from our competitors in that the full cost of your loan, including all interest and charges, is calculated and disclosed upfront. If you then miss any repayments or need to take longer to repay, we do not charge you any further penalties.

The way that fixed term, fixed interest loans work is that the customer pays off the interest on a sliding scale, with the interest making up a greater proportion of the balance in the earlier part of the loan term. Effectively this means that the first payments made are primarily interest with little capital repayment.

As later repayments become payable, the amount of capital repaid as a proportion of the payment sum increases. In essence, the further through the loan term, the more the outstanding balance consists primarily of the capital borrowed.

If you choose to request an early settlement, it states in the terms and conditions of your Agreement that the settlement payment must be made within a period of 28 days of the initial request. The Regulations take this 28 day period into account when calculating the settlement date and subsequent rebate.

This approach to early settlement rebate calculations is allowed for by The Consumer Credit (Early Settlement) regulations 2004. The relevant clause can be viewed at LINK REMOVED

If you need further help with your query or wish to speak to us please contact our friendly Customer Care team on 0800 694 0004 which is free from most landlines or call 0330 303 2000 which is a local rate number from a mobile.


My questions are:

- The lady who sent me this email catagorically told me on the phone they dont "pre load" interest however they do calculate interest "at the start of the loan term" - this is the same thing surely?

- Is preloading interest on a personal loan in this manner legal?

- If so, is this settlement figure valid?

Thank you for any help in advance.

Daniel

[Deleted User]

hulsealpah1 wrote: »

- The lady who sent me this email catagorically told me on the phone they dont "pre load" interest however they do calculate interest "at the start of the loan term" - this is the same thing surely?

- Is preloading interest on a personal loan in this manner legal?

- If so, is this settlement figure valid?

1. It's surely not. Front or pre loading would mean paying all the interest up front. Calculating for agreement purposes is entirely different.

2.It's not, but they're not.

3. Yes.

The key point is that you pay much more interest at the start of the term, as your balance is higher.

StopIt

This isn't front loading interest.

Yes it is legal. Because that's not what they're doing. Front loading IS illegal.


It's the effects of being a high APR product. You're charged interest daily on the balance, so 4 months worth of interest at high APR is still pretty big. What was the APR?

hulsealpah1

APR is roughly 150%

PeacefulWaters

So thorough with your information and yet you omit the APR.

I assume it's high and if so their charges will be right.

TrickyDicky101

hulsealpah1 wrote: »

APR is roughly 150%

APR is 320%

TadleyBaggie

TrickyDicky101 wrote: »

APR is 320%

No it's not, with an APR of 150%, a loan of £1200 for 12 months would indeed have payments of close to £200 per month.

TrickyDicky101

TadleyBaggie wrote: »

No it's not, with an APR of 150%, a loan of £1200 for 12 months would indeed have payments of close to £200 per month.

320% APR equates to periodic (ie monthly) rate of c.12.7%. This is the rate of interest being applied to the loan.

It's straightforward to calculate in Excel using the Finance functions eg:

Periodic rate = RATE(Nper, PMT, PV)

Nper = 12 (ie 12 months)
PMT = -200 (the monthly payment)
PV = amount borrowed ie 1200

Then you need to compound the rate up into an annual equivalent.

How are you determining the 150%?


EDIT: if you are simply taking periodic rate and multiplying by 12 this gives you the annual Nominal rate and not the APR - you need to compound (eg in Excel):

= (1+12.7%)^12 - 1
= c.320%

TadleyBaggie

I used a well known online loan calculator, entering the numbers given by the OP.

TrickyDicky101

TadleyBaggie wrote: »

I used a well known online loan calculator, entering the numbers given by the OP.

And do you understand the calculation?

On the Satsuma site there is a representative example of borrowing £400 loan over 6 months at £126.40 payment per month.

What APR does this produce in your website calculation?

Compare the answer to what Satsuma quote (at 991% APR).

Mobeer

TrickyDicky101 wrote: »

...
It's straightforward to calculate in Excel using the Finance functions eg:
.....

Then you need ....

Then you need to multiply by 12, not compound:

Original documentation:
https://msdn.microsoft.com/en-us/vba/excel-vba/articles/worksheetfunction-pmt-method-excel

A worked example:
http://www.exceltactics.com/car-loan-calculator-part-1-collecting-variables-and-calculating-payments-using-the-pmt-function/