Everyday loans early settlement rip off!

squarehead94

Hi all. I'm just wanting some advice on whether there is anything I can do with regards to my early settlement figure.
So some background:
Took out a £4200 loan last year. 36 months @ 289.70pm (total repayable 10429.20) I have made 14 payments so far, totalling 4055.80. 
I calculated that based on my loan amount, total cost of interest is 6229.20 over 36 months. That works out at 173pm in interest alone. 
So, with that in mind, I expected to repay around 2,768 for the cost of the interest during the time I have borrowed the money before settling (this is interest of 16 months, as I am sure I have read somewhere that early settlements incur a 58 day interest penalty so if i am repaying after 14 months, I'm paying for 16 months worth of interest) 
That's fine, I have no problem with that. Therefore the amount I expected to repay total is 6968. Now obviously I have so far paid back 4055 so I expected to pay back around 2,913 as an early settlement figure. 
However after calling yesterday, they want 4197. I dont understand this as that would mean I would have paid back 8252, that's an awful lot more than I would have expected considering I'd be repaying so early. Does this sound right and above board and legal? Thanks in advance

MinuteNoodles

Your calculation of the interest is wrong. It isn't a flat rate APR so the amount of interest you pay every month changes as it's based on the outstanding balance that month therefore as you continue to pay the debt every month less and less of the payment goes to paying interest and more on the capital.

If in doubt ask them for a breakdown of the calculation or post the APR rate here so people can calculate it for you.

Brock_and_Roll

If its any consolation, this is a very common situation!!
Best to think of the car loan like a mortgage - in the early years most of you £1,000 payment is interest with only a bit coming off the capital. By the time you get to year 23, most of your £1,000 payment is capital with just a bit of interest.

squarehead94

I actually called in december last year and the figure then (6 months ago) was 4600. So it's only gone down around £400 in 6 months of regular payments. Does that sound right?

[Deleted User]

Sounds about right.

What's the APR?  

lordmountararat

Was the loan through a car dealership? Dealerships have the nasty habit of quoting their loan interest as flat rate. APR is around double flat rate, so a loan quoted at, say, 5% flat rate will actually be around 11% APR. The APR will be somewhere in the small print, but I don't know why they are still allowed to get away with quoting misleading flat rate interest.

squarehead94

lordmountararat said:

Was the loan through a car dealership? Dealerships have the nasty habit of quoting their loan interest as flat rate. APR is around double flat rate, so a loan quoted at, say, 5% flat rate will actually be around 11% APR. The APR will be somewhere in the small print, but I don't know why they are still allowed to get away with quoting misleading flat rate interest.

No no it was through everyday loans. I believe their APR is listed on the site. It may be correct just seems crazy that I'm paying 4000 pounds in interest over 14 months vs 6000 over 36 months... still worth paying off but only just given my circumstances

SnowTiger

squarehead94 said:

Hi all. I'm just wanting some advice on whether there is anything I can do with regards to my early settlement figure.
So some background:
Took out a £4200 loan last year. 36 months @ 289.70pm (total repayable 10429.20) I have made 14 payments so far, totalling 4055.80. 
I calculated that based on my loan amount, total cost of interest is 6229.20 over 36 months. That works out at 173pm in interest alone. 
So, with that in mind, I expected to repay around 2,768 for the cost of the interest during the time I have borrowed the money before settling (this is interest of 16 months, as I am sure I have read somewhere that early settlements incur a 58 day interest penalty so if i am repaying after 14 months, I'm paying for 16 months worth of interest) 
That's fine, I have no problem with that. Therefore the amount I expected to repay total is 6968. Now obviously I have so far paid back 4055 so I expected to pay back around 2,913 as an early settlement figure. 
However after calling yesterday, they want 4197. I dont understand this as that would mean I would have paid back 8252, that's an awful lot more than I would have expected considering I'd be repaying so early. Does this sound right and above board and legal? Thanks in advance

Your issue is that at the beginning of a loan most of your monthly payments go towards interest.

Pop off here and type in your loan details.

Closest I get to your figures is a £4,200 loan over 36 months with repayments of £290.12 a month.

After 14 monthly payments the loan amount outstanding would be £3,468.28.

£3,468.28 + two payments (~£600) is about £4150.

Obviously these calculations are not based on your real numbers, but they do demonstrate how after making payments of nearly £300 for 14 months your early settlement figure is almost the same as the amount you borrowed.

Fighter1986

squarehead94 said:

lordmountararat said:

Was the loan through a car dealership? Dealerships have the nasty habit of quoting their loan interest as flat rate. APR is around double flat rate, so a loan quoted at, say, 5% flat rate will actually be around 11% APR. The APR will be somewhere in the small print, but I don't know why they are still allowed to get away with quoting misleading flat rate interest.

No no it was through everyday loans. I believe their APR is listed on the site. It may be correct just seems crazy that I'm paying 4000 pounds in interest over 14 months vs 6000 over 36 months... still worth paying off but only just given my circumstances

Oh my. It seems there's a lot you didn't understand about the loan you took out.

The APR given to each customer is based on the lenders assessment of your risk. The APR listed on their website is only representative. It isn't the APR everyone gets.

Your APR will have been listed on your agreement. You had the opportunity to accept or turn down this APR if you thought it was too expensive. 

With a high interest loan, the first monthly payment is damn near all interest and takes but a small scratch off the capital you owe.

The amount of capital you clear each month does steadily increase but very slowly. 

Think of it this way.

The first payment you make will be about 99% interest and 1% capital. The split goes down on a sliding scale as the loan gets older. The final payment is of course 100% capital and 0% interest.

In other words, if your monthly payments are £100, then in Month 1

£99 will he interest
£1 will go towards reducing the balance

Month 2 maybe £98.50 will be interest
£1.50 will go towards reducing the balance

And so on.