Loan settlement figure much higher than original amount - surely can’t be right?

DobiWanKenobi55

Hi everyone - apologies for the clickbaity title but hoping you can help! This all looks a bit fishy to me but I could be totally wrong. 

So I’ve been quoted an early loan resettlement from Hitachi which is much higher than the initial loan was taken out for.

I’ve fallen foul of the ‘buy now pay later’ element I think. So we took out a loan for a kitchen and had full intention of paying it off before the payment holiday kicked in 12 months later, but various life events and bereavements got in the way. So:

Loan amount: 9332

Dates: taken out Dec 18 with 12 months deferral so payments started Dec 19

APR: 19.9% 

Total amount payable: 23566

Monthly payment: 198

Estimated final payment: May 2030

Total payments made : 21 (took a 3 month COVID payment holiday)

Settlement figure: quoted: 10742

So the settlement figure is the thing I don’t get. We are now in a position where we can pay off the balance, and I want to get this loan off deck as it’s such poor terms. 

I confirmed this with Hitachi and the settlement figure is provided in writing on the portal. They confirmed it is correct and the reason it is so high is that ‘interest is applied from day 1’. There is nothing else in the documentation about redemption or other charges and they said it is purely an interest thing. 

So I expected probably 2 months interest on top of any settlement figure, and with such rubbish terms I expected something like 8.5k being outstanding. What I can’t get my head around though is how can the settlement. Figure be approximately 2k more than that, and £1500 more than the original loan amount??

Thanks so much in advance, this place is amazing. 

emmajones1976

Bear in mind interest would have been accruing throughout the 3 month holiday term with no payments being made to offset it.

[Deleted User]

That looks about right. You had a year of no repayments, where the best part of £2k interest would have been added.

You then had another 3 months of missed payments for Covid. That's a lot of interest with few repayments to offset them.

macman

To state the obvious, it's a payment holiday, not an interest holiday.

Sandtree

This is the gotcha of these loans... the interest free period is only interest free if you clear the balance in full within the timeframe... if you dont the interest is back dated to the start of the loan

Pixie5740

DobiWanKenobi55 said:

Hi everyone - apologies for the clickbaity title but hoping you can help! This all looks a bit fishy to me but I could be totally wrong. 

So I’ve been quoted an early loan resettlement from Hitachi which is much higher than the initial loan was taken out for.

I’ve fallen foul of the ‘buy now pay later’ element I think. So we took out a loan for a kitchen and had full intention of paying it off before the payment holiday kicked in 12 months later, but various life events and bereavements got in the way. So:

Loan amount: 9332

Dates: taken out Dec 18 with 12 months deferral so payments started Dec 19

APR: 19.9% 

Total amount payable: 23566

Monthly payment: 198

Estimated final payment: May 2030

Total payments made : 21 (took a 3 month COVID payment holiday)

Settlement figure: quoted: 10742

So the settlement figure is the thing I don’t get. We are now in a position where we can pay off the balance, and I want to get this loan off deck as it’s such poor terms. 

I confirmed this with Hitachi and the settlement figure is provided in writing on the portal. They confirmed it is correct and the reason it is so high is that ‘interest is applied from day 1’. There is nothing else in the documentation about redemption or other charges and they said it is purely an interest thing. 

So I expected probably 2 months interest on top of any settlement figure, and with such rubbish terms I expected something like 8.5k being outstanding. What I can’t get my head around though is how can the settlement. Figure be approximately 2k more than that, and £1500 more than the original loan amount??

Thanks so much in advance, this place is amazing. 

In the first year you started accruing in interest on a daily basis at quite a high rate for a loan of that size whilst paying nothing off the capital. That alone would put the outstanding balance above £9332 at about £11,189 (9332 x 1.199). 

The loan term is pretty long for a loan of that size so in the early stages of the loan most of your payment is repaying interest not the principal. I reckon your monthly repayments must have been a little under £200 a month so for the first 21 payments you’d have only been paying off £7 to £10 a month off the principal. Throw the 3 month payment holiday into the mix where interest is still accruing and it’s quite conceivable that you still owe more than you originally borrowed some 2 years later.  

You can trying plugging some numbers into a loan amortisation calculator to see how little of the principal you’ve paid off and how much interest you’ve accrued. There are free calculators available online. 

cx6

Same with credit cards - if you don't pay the full amount off by the payment date then interest is backdated to the date the items were purchased

Sandtree

cx6 said:

Same with credit cards - if you don't pay the full amount off by the payment date then interest is backdated to the date the items were purchased

But not how a 0% credit card works... interest there if you dont clear the balance only accrues from the end of the promotional period not back to inception.

p00hsticks

Sandtree said:

cx6 said:

Same with credit cards - if you don't pay the full amount off by the payment date then interest is backdated to the date the items were purchased

But not how a 0% credit card works... interest there if you dont clear the balance only accrues from the end of the promotional period not back to inception.

There's no indication from the OP that this was an 0% finance deal - just that there was an initial 12-month payment holiday.

Sandtree

p00hsticks said:

Sandtree said:

cx6 said:

Same with credit cards - if you don't pay the full amount off by the payment date then interest is backdated to the date the items were purchased

But not how a 0% credit card works... interest there if you dont clear the balance only accrues from the end of the promotional period not back to inception.

There's no indication from the OP that this was an 0% finance deal - just that there was an initial 12-month payment holiday.

They havent explicitly stated it but that is how these buy now, pay later.. as per the Hitatchi webpage on this type of product Our products | Hitachi Capital UK there is no interest charged if paid off within the holiday period:

"No interest to be paid if the agreement is settled before the end of the holiday period (early settlement fees may apply)"

DobiWanKenobi55

Thanks everyone this really helps. It wasn’t a 0% thing and the comments about interest during the year of no payments make sense now I think about it, I basically have been paying off just the interest each month and it’s kind of an overdue bill that’s been added to the overall balance. 

The way I make sense of it in my head is that it’s almost like I’ve had 15 months in total of payment holidays, and the interest for that doesn’t disappear it just gets added to the overall balance.

sucks but I’m chalking this one up to stupidity and experience. Going to just pay it all off. Thanks everyone for the help and I know I couldn’t find this asked before so sure it will help someone else in a similar situation! Thanks!