Early Settlement of Loan - 58 Days Question

FocusHappy

I'm confused. I'd like to pay off an MBNA loan off early. But the wording of their contract is confusing. The first part seems to indicate the full interest for the whole term is due, plus 58 Days. But the rest seems to say I just pay 58 days interest in total when I pay it off. Help!

This is what the contract says:
- You must pay the full amount you owe us, plus the interest you agreed to pay us for the remaining term of the loan. This means you must pay us the total amount of you remaining repayments under the agreement, less a rebate that we will apply.
- This rebate is calculated in accordance with the Consumer Credit (Early Settlement) Regulations 2004. 
- Because of the rebate we will only charge you up to 58 days worth of interest on the outstanding balance because we will calculate the settlement amount using a settlement date that is 58 days after the date of the settlement notice.

Am I correct in thinking that their first part of their T&C's mean nothing? So on a £15k loan + interest, am I correct in thinking that to pay it off early, I will only pay £15k, plus ONLY 58 days interest at a max? Or rather slightly less than £15k given the repayments I have already made.

MorningcoffeeIV

It's just how they express it - ie

• You will owe us everything under the contract
• But we will give you a rebate of interest
• Meaning you effectively pay current balance plus 58 days interest

born_again

How long have you been paying the loan?

As you need to ask for a settlement figure.

CliveOfIndia

Yes, the wording is a little unclear, but the early settlement of loans always follows the same rules.  You basically have to pay all of the capital remaining, plus any interest accrued from your last payment until the day you make the settlement payment (say a week's interest or whatever it may be).  A lender is allowed to charge an early settlement penalty of up to 2 months' interest (1 month's if there's less than a year left to run) on top.

FocusHappy said:

So on a £15k loan + interest, am I correct in thinking that to pay it off early, I will only pay £15k, plus ONLY 58 days interest at a max? Or rather slightly less than £15k given the repayments I have already made.

Pretty much.  Don't forget, repayments you've made so far will have been paying off the interest as well.  So if you were making repayments of £200 a month and you've made 3 repayments, your capital will still stand at more than £14,400.  Of the £600 you've paid, not all of that will have reduced the capital, some will have been paying off interest.

And if they calculate interest daily, there'll be a bit of interest to pay for the period since your last scheduled payment and the date you make the full settlement payment - in addition to the 58 days penalty interest.

If you ask them for a settlement figure they'll give you an exact amount, which will be valid for a specified number of days.

FocusHappy

MorningcoffeeIV said:

It's just how they express it - ie

• You will owe us everything under the contract
• But we will give you a rebate of interest
• Meaning you effectively pay current balance plus 58 days interest

Could you just clarify - The current balance is the figure I needed to loan, without the interest I agreed to pay them? 

FocusHappy

CliveOfIndia said:

Yes, the wording is a little unclear, but the early settlement of loans always follows the same rules.  You basically have to pay all of the capital remaining, plus any interest accrued from your last payment until the day you make the settlement payment (say a week's interest or whatever it may be).  A lender is allowed to charge an early settlement penalty of up to 2 months' interest (1 month's if there's less than a year left to run) on top.

FocusHappy said:

So on a £15k loan + interest, am I correct in thinking that to pay it off early, I will only pay £15k, plus ONLY 58 days interest at a max? Or rather slightly less than £15k given the repayments I have already made.

Pretty much.  Don't forget, repayments you've made so far will have been paying off the interest as well.  So if you were making repayments of £200 a month and you've made 3 repayments, your capital will still stand at more than £14,400.  Of the £600 you've paid, not all of that will have reduced the capital, some will have been paying off interest.

And if they calculate interest daily, there'll be a bit of interest to pay for the period since your last scheduled payment and the date you make the full settlement payment - in addition to the 58 days penalty interest.

If you ask them for a settlement figure they'll give you an exact amount, which will be valid for a specified number of days.

CliveOfIndia said:

Yes, the wording is a little unclear, but the early settlement of loans always follows the same rules.  You basically have to pay all of the capital remaining, plus any interest accrued from your last payment until the day you make the settlement payment (say a week's interest or whatever it may be).  A lender is allowed to charge an early settlement penalty of up to 2 months' interest (1 month's if there's less than a year left to run) on top.

FocusHappy said:

So on a £15k loan + interest, am I correct in thinking that to pay it off early, I will only pay £15k, plus ONLY 58 days interest at a max? Or rather slightly less than £15k given the repayments I have already made.

Pretty much.  Don't forget, repayments you've made so far will have been paying off the interest as well.  So if you were making repayments of £200 a month and you've made 3 repayments, your capital will still stand at more than £14,400.  Of the £600 you've paid, not all of that will have reduced the capital, some will have been paying off interest.

And if they calculate interest daily, there'll be a bit of interest to pay for the period since your last scheduled payment and the date you make the full settlement payment - in addition to the 58 days penalty interest.

If you ask them for a settlement figure they'll give you an exact amount, which will be valid for a specified number of days.

That's what I thought, great, thanks

MorningcoffeeIV

FocusHappy said:

MorningcoffeeIV said:

It's just how they express it - ie

• You will owe us everything under the contract
• But we will give you a rebate of interest
• Meaning you effectively pay current balance plus 58 days interest

Could you just clarify - The current balance is the figure I needed to loan, without the interest I agreed to pay them? 

No, 

The current balance isn't the amount you needed to borrow (they did the lending, you did the borrowing).

It's the outstanding amount you owe.