"Top heavy" vehicle loan

Skylined

Six months ago I took a three year loan for a vehicle, small amount, only £2000, high APR but that’s OK because my credit rating was not stellar, and I paid the rest of the value upfront in cash. I’ve paid 5 installments of £90 so far, total £450. Today I requested a settlement figure to close the account and I was quoted £1967. When I asked why the amount I’d had to pay today is only £33 less than the amount I borrowed six months ago I was told the repayment of the loan is “top heavy” meaning first I pay off three years worth of interest and then the amount I borrowed.

Not only they are charging me future interest but I distinctly remember when I took the agreement I was told if I decide to pay off the loan early I would only have to pay interest I have accrued up to that point. Any recommendations as to what I should be doing?

[Deleted User]

They're not charging you future interest and it's not 'top heavy'.

You simply pay more interest in the early stages as the balance is so much higher.

The sooner you settle it, the less you will pay.

Skylined

So did I pay £417 interest on a £2000 loan in six months? By the way they used the term "top heavy"

[Deleted User]

It makes lots of sense. Remember there is also the two months early settlement fee added on.

It doesn't matter who said 'top heavy'. It's not top heavy.

DrEskimo

What was the APR and how long was the term of the loan?

Was there any mention of early settlement fees or optional purchase fees in your T&C's?

TrickyDicky101

Was your APR around 40.63%? After only 5 repayments and then a further 22 days of accrued interest plus the 58 days settlement interest I get back to £1967.

Skylined

Yeap. 40% APR over three years

Don't think there was any mention of early settlement fees and it was definitely not mentioned today during my phone conversation with them. I asked them to send me an email with a breakdown of what I'd have to pay and still waiting for this to arrive

iolanthe07

With such a high interest rate, in the early stages of the loan almost all the monthly payment goes to interest. As the loan continues, more of the principal will be paid off, so that towards the end almost all the monthly payment will be principal. This is why it seems you are getting nowhere to start with, but you will be amazed at how quickly the amount owed decreases in the final months. It is how loans work, and 'top-heavy' is an overly simplistic way of explaining it. Most loans have a settlement fee of one or two months' interest if paid off early.

dresdendave

Skylined wrote: »

Yeap. 40% over three years

Don't think there was any mention of early settlement fees and it was definitely not mentioned today during my phone conversation with them. I asked them to send me an email with a breakdown with I'd have to pay and still waiting for this to arrive

What matters is what is on your loan paperwork, anything that was or wasn't said on the phone is meaningless.

Skylined

Yeah I will have to go through that agreement. Thank you for the replies, let's pause it here for now until I hear back from them and do a bit of research of my own

foxy-stoat

You dont need to wait for their email;

Payment 1 = £2000.00 x 40% / 12 = £2066.67 - £90 = £1976.67
Payment 2 = £1976.67 x 40% / 12 = £2041.56 - £90 = £1952.56
Payment 2 = £1952.56 x 40% / 12 = £2017.65 - £90 = £1927.65
Payment 3 = £1927.65 x 40% / 12 = £1991.91 - £90 = £1901.91
Payment 4 = £1919.91 x 40% / 12 = £1983.31 - £90 = £1893.31
Payment 5 = £1893.31 x 40% / 12 = £1956.42 - £90 = £1866.42

58 days interest = £118.90

So settlement figure should be £1985.32 or thereabouts depending on when your payment date was and when you asked for it to be settled.

You have paid £450 yes but in the last 5 months you have had to pay £387.42 in interest charges.