Please help me understand my car finance

gazfocus Posts: 2,362
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So in January 2022 I took out cad finance to buy a car. It was only needed short term and I intended to pay it off relatively quickly. The finance was for £10,695 and I paid £12,000 deposit. 

The finance company front loaded the interest onto the agreement so the paperwork from them has my starting balance as £16,399.60. 

I contacted them in June 2022 to ask for the settlement figure and was stunned when they came back with £10,648.33 (ie £46.67 less than the original loan amount after paying them £1,365.80). 

I asked them to explain and they just said the settlement is the current outstanding balance minus the future interest, so I asked for a statement. 

It’s taken until now to get a statement but each month there is a ‘capital’ payment of around £120 and an ‘interest’ payment of around £160, but what I don’t understand, and what I hoped someone here could try explaining, is if the statement says I’ve paid £574.81 of the ‘capital’ and £791, how can my settlement balance be just £46.67 less than the original loan amount and shouldn’t it be £574.81 less that my original loan?

Sorry if this makes me seem really stupid. 


  • The interest wasn't front loaded. That's been outlawed for a decade.

    Your settlement figure is the capital remaining plus 2 months interest. You clear very little capital in the early stages as more of your payments is taken up by interest. So everything is as it should be.

    The sooner you settle, the more you save.

  • Grumpy_chap
    Grumpy_chap Posts: 14,448
    First Anniversary First Post Name Dropper Combo Breaker
    The finance company will not have front-loaded the loan, but the way that loans are presented I understand why you think that was what appeared to have happened.

    You borrowed £10,695 over a fixed term.
    If you made the payments as set out the finance is cleared at the end of that term.
    The total you would pay in that case is £16,400 which is the original capital, interest plus other fees (option to purchase?)
    So, as soon as you took the loan, your forecast liability was £16,400 and that is what has been shown in the paperwork.

    If you made an overpayment in the first month, say 50% of the original amount so £5,350 then the next statement would show a rebalance assuming the term remains the same and your liability would show £8,200 or thereabouts.

    You've made the first 10 months or so repayments and the capital has only reduced by £50 even though you thought you had made repayments of around £570 of the original capital.  Could the difference be fees?  What fees are detailed in the loan agreement?  Does the loan have an early redemption charge?
  • gazfocus
    gazfocus Posts: 2,362
    Name Dropper First Post First Anniversary Combo Breaker
    Thanks for the replies so far. 

    My confusion comes from the fact that the statement shows a ‘capital’ column and an ‘interest’ column for each monthly payment. Adding up the ‘capital’ columns from January to June (when the settlement figure was quoted), I had paid £574.81 under the ‘capital’ column plus £791 under the ‘interest’ column.

    So I’m just a bit confused about how my outstanding balance only reduced by £46.67 when I’ve paid £574.81 under the capital column. 

    Having said that, they hadn’t mentioned being charged two months interest to that could be it. There’s no fees for early repayment as far as I can see, and the option to purchase fee is only £10. 
  • Nearlyold
    Nearlyold Posts: 2,236
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    edited 11 November 2022 at 9:28PM
    They won't necessarily specify the 2 months interest payments as a Fee, they will just say that early settlements are calculated in line with the early settlement regulations (these allow lenders to post-date the assumed settlement date for early settlement calculations by up to two months).  
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