Settlement figure

Tillie123 · 19 July 2019 at 1:56PM

I have a loan with an outstanding amount of 4400 I have asked for an early settlement figure and have just been given the existing loan amount. I thought it may be less as I was paying of early I still have at least 2 years to run. Surely I would get a reduction in the interest which is charged monthly on top of the repayment amount
Thanks

ndf9876 · 19 July 2019 at 2:09PM

You will indeed get a reduction in interest - are you sure you got a redemption figure not a current balance? Probably a silly question I know but never hurts to ask!

Don't forget that they may be charging you up to 2 months' interest on top of the redemption; depending on the rate of your loan it's possible that there isn't much interest to rebate in the first place?

Finally, I think lenders "front load" the interest even though it accrues daily for redemption purposes. Just to clarify I think this is what's known as the "actuarial method" so each month, your payment comprises more capital and less interest. In this case, unless you are being charged early redemption penalties, all I can think is that there is very little interest left to pay.

What APR is your loan?

Caz3121 · 19 July 2019 at 2:23PM

Tillie123 wrote: »

I have a loan with an outstanding amount of 4400 I have asked for an early settlement figure and have just been given the existing loan amount. I thought it may be less as I was paying of early I still have at least 2 years to run.

have you calculated the amount you would pay if you continued to make the remaining payments until the end of the term?
It may be confusion with your statement where you are seeing the outstanding amount...there will be interest added to that every month.

Tillie123 · 19 July 2019 at 2:24PM

Hi thanks for your reply the interest is 16.9 % I asked for a settlement figure. The interest on the loan is approx £55 per month the loan repayments are the same throughout the term.

foxy-stoat · 19 July 2019 at 2:33PM

Sounds like they are not going to charge you the 2 months interest - well done, thats a win for sure.

ndf9876 · 19 July 2019 at 2:37PM

OK, I think if you don't mind sharing it would be helpful to know :

- Total amount borrowed
- Original term of Loan
- Number of repayments made

At the start of the loan, you are paying mainly interest. Towards the end, you end up paying more capital - this is because the interest is calculated daily (as I said earlier, what I'm pretty sure is called the "actuarial method"). So the interest won't be £55 per month, it will decrease the longer the loan goes on. At the start it may well have been a lot higher.

If I were you I'd be asking for a complete breakdown of that "settlement figure" i.e. amount borrowed, term, additional fees added.

Have you missed any payments?

Tillie123 · 19 July 2019 at 3:43PM

The original amount borrowed was £6000 with interest of 2132.75 I have made 17 payments. I have just logged into my account and it says amount outstanding 4178.29 but settlement is 4232.31 so I presume they are charging me early penalty charges. The loan was taken out over 4 years.
Thanks

ndf9876 · 19 July 2019 at 4:17PM

On that basis and on the figures supplied, that looks about right. £4232 is indeed a reduction in the interest you'd pay, plus I suspect 2 months added interest as a "redemption penalty".

I am probably not the best person to explain how the interest accrues and is paid off, but if I were in your position I can say I'd be satisfied that the figures were correct. If in doubt - ask the lender for a full breakdown (which typically I think most do anyway, in writing, when you ask for a settlement figure).

Nearlyold · 19 July 2019 at 5:00PM

There two ways that lenders can show the "balance" on a loan statement.

1) To show the current amount outstanding by taking the original amount borrowed adding the interest accrued to date and deducting the payments made to date. This figure does not take into account future interest yet to be added nor future payments yet to be made. It is thus the true current balance and the lender simply adds up to 2 months interest (if charged) to arrive at the settlement figure.
or
2) To show the current amount outstanding as the total of the payments yet to be made up to the end date of the loan (which of course includes all the interest yet to be charged). In order to arrive at the settlement figure the lender deducts the interest that will now not be charged because the loan is to be settled early and adds up to two months interest (if charged) to arrive at the settlement figure.

Assuming there is a 2 month interest charge the settlement figure will be higher than the statement "balance" where the lenders uses method 1 and lower where the lender uses method 2. In both cases the Settlement Figure will be identical.

If you google Guardian Loan Calculator and put the loan figures in you can see how the loan balance and monthly interest interact.

enthusiasticsaver · 19 July 2019 at 5:14PM

How much is your monthly repayment?

Interest is normally calculated daily on loans and charged monthly. Your current balance will only show interest accrued to date and not the interest you would pay if you do not settle it early.

So to calculate how much you are saving by settling it early you need to do the following calculations.

£8132.75 is the amount you would pay if you leave the loan as it stands and pay it off over 4 years. I assume therefore the monthly repayments are £169.43 unless you paid an upfront admin fee in which case it could be higher?

Assuming £169.43 is correct you have made 17 payments amounting to £2880.31. Add this to the settlement figure of £4232.31 and you have a total of £7112.62.

Subtract the second figure from the first so £8132.75 - £7112.62 which is £1020.13 so this is the interest you will save by repaying the loan now.

Tillie123 · 20 July 2019 at 9:13AM

Thanks everyone when I was looking at the amount owed I didn’t realise that the interest wasn’t added on but get it now. &#55357;&#56904;

Settlement figure

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