Hire purchase Interest Rate

Tarun139

Hi

Recently I just took out a hire purchase for a used car and Ive been trying to search for answers but it seems like an endless search.

I am borrowing 10k with a 25% interest rate. (Yes I know it's high)

I am due to pay back 15k over 6 years.

I took the finance because I know I can pay 10k back by June.

1.8k every month until June.

The Question

How much interest should I legally be charged if I decide to make it back early.

I Called up the finance company and they told me I would be paying back the whole 15k even if I chose to end the finance early, which doesn't make sense to me.


Any advice would be grateful

Thanks

Edi81

What does the contract say about early settlement?

Tarun139

You have the right under section 94 of the Consumer Credit Act 1974 to repay early in full or in part. If you wish to pay any
amount early you must give notice to us at Moneyway, One Arleston Way, Solihull, B90 4LH or telephone us on 0345 111
7125. You must make any partial early repayment within the period of 28 days beginning with the day after you give us notice
or on or before any later date that you specify when you give notice. Unless you repay in full, any early repayment you make
will not reduce the duration of the agreement but, if you have given us notice of your intention to pay an amount early, we will
recalculate the amount of the remaining monthly instalments to reflect the way in which the Total amount payable has been
reduced by the early repayment

antrobus

Tarun139 wrote: »

....
How much interest should I legally be charged if I decide to make it back early.

....

Your rights when repaying HP early
The amount the lender can charge you for repaying an HP agreement early is capped by law.

This rule is part of the Consumer Credit Act and is on pages 6 and 7 of the Financial and Leasing Association leaflet on repaying your loan early.

The most you can be expected to pay is the outstanding capital on what you borrowed (but not the interest) plus whichever is the lowest of these three amounts:

• 1% of the amount repaid early – for example £100 if you have an outstanding debt of £10,000.
• 0.5% of the amount repaid early if there are less than 12 months remaining – for example, £50 if you have a debt of £10,000.
• The remaining interest.

https://www.moneyadviceservice.org.uk/en/articles/cut-your-car-finance-hire-purchase-and-other-finance-costs

Tarun139

Thanks that's exactly what I thought. But they're telling me that I need to pay the full amount including interest.

glennstar

That will be the interest incurred over the 6 or 7 months you are paying back, rather than the interest on the mount if it had run to term. If you already have the financing from them then maybe request a Full and Final settlement figure from them, I'm sure it will be much clearer in writing.

Also, given you have to notify them every month of over payment, would it not be easier to pay the normal amounts for the 5 or 6 months, save the rest and then settle when you have the money in hand? I appreciate it's more expensive but a lot less prone to error and to them weaselling about and finding a reason to foil your plan - of which I'm sure they have many.

~Brock~

Ask them to actually send you a written settlement figure, see what that says and then take it from there, posting back on this thread if necessary.

foxy-stoat

Do take out some GAP Insurance, in case you have to "sell" it back to the insurance company.

Tarun139

I appreciate everyone's help. I was actually thinking I made a huge mistake.

I wanted to increase my credit score as I want to get a mortgage in a couple years.

I also needed a car, so I thought I'd buy a semi decent car that I could use to help with deposit in the future, thinking I could pay it off by June.

[Deleted User]

Tarun139 wrote: »

I wanted to increase my credit score as I want to get a mortgage in a couple years.

Remember that your credit score isn't a real thing, so make sure you focus on building good credit history, rather than the pretend score, or you're likely to do the wrong thing.

foxy-stoat

Tarun139 wrote: »

I appreciate everyone's help. I was actually thinking I made a huge mistake.

I wanted to increase my credit score as I want to get a mortgage in a couple years.

I also needed a car, so I thought I'd buy a semi decent car that I could use to help with deposit in the future, thinking I could pay it off by June.

All that doesnt make much sense -

You want a mortgage in a couple of years so take out a loan for an interest rate of 25% over 6 years - only to over pay it so you pay it back in 10 months - buy a £10K car in the hope that its worth something in a few years to use towards a house deposit.

You where better off saving £1500 a month for the next 2 years and buying a £4K car outright.

You dont have a credit score, only credit history.