Outstanding balance lower than settlement figure

Blue_sky101

Hi all,

I’m more of a lurker on here but wonder if anyone can help with this query.

i took out a loan over 4 years with New Day in March 2020 of £6000 at 17.95% APR which has since been transferred to Asset Link Capital. Last month I asked for my settlement figure and here is the info I was given verbally and confirmed via email.

Current outstanding balance is £3123.70
Settlement figure is £3172.17

Why I queried why settlement figure is higher than outstanding  balance, They say they charge 2 months interest for settling early. Ok but using a loan calculator, interest for
july and august is about £45 and £43 respectively. There is over a years worth of interest, roughly several hundreds of pounds,  that doesn’t seem to have been deducted from settlement figure?

it’s driving me mad as I had car finance that I settled early recently and settlement figures I’d received in last couple of years were always lower than outstanding amount due to interest rebate.

Are they not both bound by same regulations? 

What am I missing here? Thanks.

DrEskimo

You are thinking of the total balance, which would be the amount owed if all interest owing is repaid. Sometimes companies will display this. In this case, it looks like they are just giving you what the outstanding balance is, with a settlement figure that gives you the extra additional cost given the early repayment fee.

I'm guessing you're paying about £172/month? In which case, if you run the full term of the loan it would cost you ~£8,256 (£6,000 of the original capital borrowed and £2,256 in interest).

You've made around 27 payments right? So you've paid ~£4,644 so far, and the settlement would mean paying an additional £3,172, which would mean you would pay a total of £7,816 by settling early. That's saving you ~£440 in interest when compare to the £8,256 you would have paid has you just continued to make payments over the full 4yrs.

HTH

Blue_sky101

DrEskimo said:

You are thinking of the total balance, which would be the amount owed if all interest owing is repaid. Sometimes companies will display this. In this case, it looks like they are just giving you what the outstanding balance is, with a settlement figure that gives you the extra additional cost given the early repayment fee.

I'm guessing you're paying about £172/month? In which case, if you run the full term of the loan it would cost you ~£8,256 (£6,000 of the original capital borrowed and £2,256 in interest).

You've made around 27 payments right? So you've paid ~£4,644 so far, and the settlement would mean paying an additional £3,172, which would mean you would pay a total of £7,816 by settling early. That's saving you ~£440 in interest when compare to the £8,256 you would have paid has you just continued to make payments over the full 4yrs.

HTH

Dr Eskimo….thank you so much for your response. I’m paying £172.69 pm and am thinking of total balance when they say outstanding balance. Plus your calculation makes sense. I guess I’m used to seeing creditor (car finance provider)  outline interest rebate on settlement quotes so it did confuse me.

this is why I love this site..so many knowledgeable people on here.