Moneybarn Car Finance

jonnybinthemix

Hey Guys,

Just a quick question if I may...

I took out a moneybarn car finance loan back in Feb 2018, and have been enquiring about early termination now as I feel that I'd like to change the car. I've not missed a single payment or £698 per month since the finance began.

The cost price of the car was £22,990 and the term was for 5 years.

The car is becoming expensive to run, and while I'm not desperate to get rid of it, I would like to consolidate my finances and get something cheaper to run & maintain.

I called to ask them for a settlement figure today to be told that the settlement figure is £18,518.44. I have also asked for a statement, but have not received it yet via email (perhaps it'll come by post).

The reason for my question is that it seems they've front loaded the interest (not sure if there's a term for that), and as such I may have paid more interest than I'm due to have paid (if I were to settle now), but the settlement figure is based on a months interest and only the capital payments remaining on the car.

My thoughts are, is this legal? Can they offset the interest payments to the beginning so the car is paid off slower and then justifiably charge the balance of the car?

Thanks
Jon

[Deleted User]

Interest is never front loaded.

It's just that you pay little off the capital in the early stages of a loan. Plus, they will have added up to two months interest for early settlement.

jonnybinthemix

They told me that it's one month interest for early settlement.

If that's the case and the interest is not front loaded, how can the payment (£698) remain the same throughout the term, and I pay less capital at the beginning and more at the end? Seems to me that the balance of capital/interest is not 50/50 on that basis, which means surely it is front loaded?

[Deleted User]

Because payments are spread evenly to make it affordable.

Over time, more of that payment goes to the capital as the monthly interest decreases.

It's still surely not front loaded.

jonnybinthemix

That doesn't make sense.

If we use 10,000 as a round figure and say interest is 30%.

Car - 10,000
Interest - 3,000

Total owed - 13,000

Let's say the term is 36 months, the payments would be 361.

If we're starting with 100% (13,000), how does splitting the balance of interest change the figure of 361?

When they generate the quote in the beginning, they take into consideration the capital cost of the car, and the projected interest throughout the term of the finance.

Now, I remember seeing in my last statement (and questioning then also), that it looks something like this...

Payment 1 = 80% interest / 20% capital
Payment 2 = 79% interest / 21% capital
...and so on.

Of course instead of having % it had a monetary figure. (I was hoping to be able to confirm this with real figures as I've asked for a new statement but not been sent it yet).

I feel that my original question stands...

jonnybinthemix

To me, this seems like front loaded interest - since they aren't offering a rebate on previously paid interest. The settlement figure is the capital remaining on the car, plus one month of interest as the early termination fee. Am I wrong?

[Deleted User]

It makes complete sense.

It's bcause your balance is higher to begin with. So your first month interest is around 250 if you had an APR of 30%. So your 316 payment is only clearing 60 of capital.

When your balance is down to 5k, ithe same payment is clearing around 200..

Interest isn't front loaded. It's simply that a higher debt attracts more interest.

[Deleted User]

jonnybinthemix wrote: »

Am I wrong?

Yes. You don't get a rebate of interest paid.

You save on not paying future interest.

There is no front loading.

jonnybinthemix

So the interest is based on the monthly payment, and not added to the overall figure?

I was assuming that is the balance is 10k, and the interest is 30% - then they take the 30% of the loan value, add it to the balance and split that figure over the term?

So you're saying that I'm only paying interest on the outstanding balance on a month by month by month?

[Deleted User]

Correct.

jonnybinthemix

Seems overly confusing, but I suspect that's the way it's designed so us mere mortals don't question the big finance god's who are making billions from us.

I guess my over all confusion is that I've been paying £698 per month for 18 months, off a car which cost £22,990 and my settlement figure is now £18,518. For a non finance guy, it's hard to swallow that I've made £12,564 in payments and only £4,472 has been paid off the balance of the car. So from here it simply seems that I've been paying balance/interest at a 2:1 ratio; £8,092 interest vs £4,472 capital.

I guess I should have looked at all of this when I was taking out the finance in the first place, but at the time we're all just excited about the shiny car we're getting and we don't think about how much it's costing us.

As I mentioned, I'm not in a position where I can't afford the payments and as such I can just carry on paying until the balance becomes low enough to be in positive equity for a part exchange... I'm just trying to ensure I wrap my head around how the payments work and being sure I fully understand what my options are.

I understand I can also do something called voluntary termination, where if I cover half of the finance term I can give the car to the finance company. But initial thoughts tell me that would be a more expensive way out than paying the difference between what's owed and it's part exchange value.