Early Settlement Confusion

buttons321

Hi everyone,

I'm sorry if this is a bit long and muddled, and "eye crossing", this kind of thing is not my forte. I've had loans before, but I've never been in the position to repay them early, so this is somewhat uncharted territory to me. I figured I'd be best to seek some advice to find out if I'm barking up the wrong tree before pushing on to the FSO.

So, here goes...

I took out loan for £2,000 last year. It was sold to me as "front loaded interest", fixed interest (39.9%), fixed term, no fees for early repayment. Fixed monthly payments, all the usual standard stuff.

The total amount borrowed inc interest over the term was £3,184.20 over 36 months.

Within two months of taking out the loan, I was in the very fortunate position to repay it.

At the time of my initial attempt to settle early, I'd made two repayments of £88.45 (totaling £176.90)

When I asked for a settlement figure the amount the company came up -with the "interest discount" applied- was £2,040.54.

I thought this was a little odd at the time since I'd made repayments, and I'd (foolishly) expected the settlement to be under £2,000, at least by a couple of quid.

Due to work issues, I didn't settle the loan immediately or within the month that the figure was valid and so I had to call up again the following month, after another £88.45 (making total repayments to date £265.35) had been paid to them, and request another settlement figure.

The settlement figure this time came back to me as £2,002.37.

Since they'd had another payment, I was pretty surprised to find the settlement was still over £2,000 and that I was still left owing them £2.37....

Since I understood this loan to be fixed interest, set term, it implied to me that each repayment I made went partially towards the interest, partly towards clearing the actual capital borrowed.

So how come when I attempted to settle the account, thus having the full terms interest removed from the total owing, am I still left owing this company more than I'd borrowed?

Does this not suggest that all my repayments have been gobbled up by the company and considered "interest only"?

What happened to the £265.35 I'd made in repayments, if not one penny of it was applied to my balance?

I've looked through the terms and conditions, and frankly they leave a lot to be desired. I have requested a statement from the company in question, which they insisted would show how the interest/repayments were applied to my account balance, but what they sent me is just a list of the payments I've made, no explanation for how they were put against what I owed.

The company themselves are being very shady and keep hiding behind their "system" whenever I try to query where my money has gone with them. (It should be noted that they've just validated another complaint regarding an adjusted repayment figure with them after I'd made a partial settlement on this loan, but that's another story but it goes someway to show that they're not being clear in their T&C's.)

Now, my understanding of borrowing/repayment is pretty basic, but given the settlement figures especially, I've come to conclude as follows.

Loan amount: £2000.00
Interest added: £1,184.20 over 36 months.
Total borrowed: £3184.20
Divided by 36 equals monthly repayment amount: £88.45

Interest of £1,184.20 ÷ 36 = suggests £32.89 a month goes towards interest.
Monthly repayments at £88.45 - £32.89 = suggests £55.56 remaining from each instalment towards capital borrowed?.

So why has a payment of £88.45 only reduced what's owed by £38.17?

And if only £38.17 is the amount that's put against my capital balance each month, then three payments of £38.17 would equal £114.51 which then surely means I'd be left owing £1885.49 not £2,002.37? Am I right, or wrong?

At this point in time, it seems to me that this company has taken all my repayments towards "interest". Which would make the loan I signed up for an interest only loan, at least for a fixed term. Nowhere in the terms and conditions does it clarify this is the case.

I get the impression I'm missing a trick, and perhaps that it "goes without saying" that all payments made prior to early settlement are deemed as interest only, but if that's the case then surely that should be specified in the T&C's under the FCA's guidelines?

So what happened to the repayments I made? I was told there would be no fees for early repayment, but it seems to me that there has been, at least in a hidden/indirect sense.

Am I being thick, or is something amiss here? Do I have good grounds to launch a complaint against this company with the FSO or am I overlooking something that allows this company to keep all of my repayments and still ask me for more than I borrowed?

Thanks all.

[Deleted User]

The interest wasn't front loaded.

Early payments mostly go to the interest as the balance is so much higher. Over time, more goes to the capital. After two payments, you have paid very little off the capital.

Early settlement invariably attracts a fee of two months interest. Check your agreement for details.

jonesMUFCforever

Who is/was the lender?

Personally I think you are mistaken that the interest was front loaded.
The CCA shows the total interest charged if you let the loan run its course.

You haven't quoted the APR so it is difficult to work out exactly the sum due after 3 repayments or if there was a 58 day interest early settlement fee.

buttons321

@ZX81 - I have gone through my agreement with a fine tooth-comb, there's absolutely no mention of this in there. There's actually very little on early repayment, other than how to do it, and that they'll assume the term stays the same under partial settlement. If you think there should be something said about the "two months interest", shouldn't that be classed as a "fee" and shouldn't it be explicitly stated in the T&C's?

-

@Jones - Don't want to name the lender if I can avoid it, but it's a fairly well known "poor credit" type.

Well, I was told it was front loaded by not only the guy who sold me the loan in the first place and all subsequent members of staff that I've spoken with. Does it seem I've been lied to?

The APR was 39.9%. If there was a 58 day fee, shouldn't that have been made clear to me when I queried early repayment fees during the application? Shouldn't it also be noted in the T&C's? If so, should I be alerting the FCA/FSO to this companies failing to be transparent?

[Deleted User]

If you name the lender, we can check the t&cs.

The figures you've posted don't seem abnormal, given the low number of payments to date and the APR.

The front loaded issue isn't that you were lied to - just that most people, call centre staff included, don't understand what front loaded means. No loans are front loaded.

PeacefulWaters

Don't want to name the lender if I can avoid it, but it's a fairly well known "poor credit" type.

I don't think MSE are covered by BBC advertising regulations.

jonesMUFCforever

buttons321 wrote: »

@ZX81 - I have gone through my agreement with a fine tooth-comb, there's absolutely no mention of this in there. There's actually very little on early repayment, other than how to do it, and that they'll assume the term stays the same under partial settlement. If you think there should be something said about the "two months interest", shouldn't that be classed as a "fee" and shouldn't it be explicitly stated in the T&C's?

-

@Jones - Don't want to name the lender if I can avoid it, but it's a fairly well known "poor credit" type.

Well, I was told it was front loaded by not only the guy who sold me the loan in the first place and all subsequent members of staff that I've spoken with. Does it seem I've been lied to?

The APR was 39.9%. If there was a 58 day fee, shouldn't that have been made clear to me when I queried early repayment fees during the application? Shouldn't it also be noted in the T&C's? If so, should I be alerting the FCA/FSO to this companies failing to be transparent?

If you don't state who lent to you - how can we check T&C's for you?
Now that you have stated the APR my working out suggests they have not charged you enough (assuming 2 months ESC)
but don't worry its only a few quid.

Me thinks you have no case to go to Ombudsman - you will be wasting their time.

Nearlyold

The APR was 39.9%. If there was a 58 day fee, shouldn't that have been made clear to me when I queried early repayment fees during the application? Shouldn't it also be noted in the T&C's? If so, should I be alerting the FCA/FSO to this companies failing to be transparent?

Did the terms and conditions make reference to the early settlement regulations, I would be very surprised if they didn't?

The two months interest charge is not actually a "fee" as such, it arises because of the way the Early Settlement Regulations allow the date when the early settlement is deemed to have been made to be post dated.

All is explained here:-
https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/34687/12-1264-consumer-credit-directive-guidance.pdf

In particular paragraphs 14.39 and 14.40 on page 67

When a customer requests a full or partial early settlement the lender has to calculate a rebate of the interest charges that would have otherwise been charged if the loan had continued as before. In calculating this rebate the assumed date of the full or partial early settlement is 28 days after the request, or 58 days after (at the lenders discretion) if the loan has more than 12 months to run.


The customer then has 28 or 58 days in which to make the payment, if they make the payment earlier than the 28 or 58 day deadline the lender does not have to adjust the rebate of interest calculation already made, the customer is simply giving the lender some free working capital for a period.

Some lenders don't make the charge however those that do will have included details in the Terms and Conditions by referencing the early settlement regulations.

No consumer loans in the UK have front loaded interest, with front loaded interest you would get no interest rebate at all which would be contrary to the early settlement regulations.

buttons321

@NearlyOld - this is all very interesting indeed, thank you. And I've been through the T&C's again this morning, absolutely nothing in there mentioning a 28/58 day period. Nothing at all in any section, especially not the parts about early repayment. So have I been right in saying to them that if they were going to keep all my repayments under terms like this, that it should have been clearly stated in my agreement?

Nearlyold

The T&Cs normally say something like "calculated as per the Early Settlement Regulations), is there not a phrase like that.

jonesMUFCforever

buttons321 wrote: »

@NearlyOld - this is all very interesting indeed, thank you. And I've been through the T&C's again this morning, absolutely nothing in there mentioning a 28/58 day period. Nothing at all in any section, especially not the parts about early repayment. So have I been right in saying to them that if they were going to keep all my repayments under terms like this, that it should have been clearly stated in my agreement?

1 Tell us who it is.
2 It probably is in the T&C 's somewhere but also on the CCA agreement you would either have physically signed or electronically if done online.