Balance same as settlement figure

SarahWoodcock

This is the email reply I've had from Bamboo.  This just doesn't make sense to me - why are they so different to everyone else?

Good afternoon, 

 

Thank you for your email. 

We can confirm that the amount required to settle your account is £3,561.54, which is your current balance.

 

Settlement figures are based on the total amount payable on your loan, less any payments that you’ve already made. The remaining sum may then be reduced by a rebate of the outstanding interest, providing a final settlement figure.  

 

Each monthly payment you make towards your loan is made up of capital (the amount you borrowed) and interest (the cost of borrowing the money). During the earlier stages of your loan more of each monthly payment goes towards paying back the interest, and as you progress through your loan the amount you pay toward the capital increases.   

 

The calculation that we use to determine the interest rebate we apply to your account is prescribed to us by the Consumer Credit Act (Early Settlement) Regulations 2004. 

We can see that you have mentioned the Financial Ombudsman Service, may we please ask if you are looking to make a complaint with ourselves regarding your settlement quote?

 

If you have any further questions, please feel free to contact our office on 02920 858746 where one of our Account Officers will be happy to help you. Our phone lines are open Monday to Thursday 08:00am till 8.00pm, Friday 09:00am till 5:00pm and Saturday 09:00am till 2:00pm.   

  

Yours sincerely 

  

Jemma Seymour 

Business Support Team 

Bamboo 

CliveOfIndia

What happens with any loan is that interest is calculated each month, based on the remaining capital.  Of the payment you make, part of it pays off interest, part of it pays off some of the capital.

In the early stages, each monthly payment goes mostly to paying that month's interest, and only a little bit of it eats away at the capital.  But as the capital reduces, each month's interest also reduces (because it's now calculated on a smaller capital amount).  So towards the end of the loan, most of your monthly payments go towards the capital as there's only a little bit of interest to pay.

So when you get a settlement figure, that's based on how much capital you've already paid/got left remaining.  If you're only a few months into the loan this will be only slightly less than what you originally borrowed, as most of your payments so far have been paying off interest, and not much capital.  But of course, you'll be saving all of the future months' interest that you would otherwise have paid.  Lenders are allowed to charge an early-settlement penalty of up to 2 month's interest if there's more than a year left on the loan, 1 month's interest if there's less than a year left.

How much did you originally borrow?