DJ Dunk

iTrader: (5)

Just got a settlement figure on a loan that I took out 9 months ago [img]images/smilies/mad.gif[/img]

The loan was over 48 months, but I want to pay it off after only 9 months of taking it out. Its bl00dy ridiculous [img]images/smilies/mad.gif[/img] works out that after the £1,500 that I've paid into it, I still have technically only paid off £25 of the original sum [img]images/smilies/mad.gif[/img]

Flamin rip-off [img]images/smilies/mad.gif[/img] Anyone else had this ?

ChrisB

That's common isn't it?

At the start, you're just paying back interest on the loan, not any of the borrowed capital.

TelBoy

Yep. Got hosed by a Marks and Spencer loan a few years ago on the redemption penalties. "All in the smallprint sir". Great.

Made me VERY cautious. Then used a Barclayloan for the Scoob two years ago, having asked them about 300 times whether i could repay early with no downsides.

And i did, and there weren't...

DJ Dunk

iTrader: (5)

Thing is, they told me it would be no problem paying off early too.

Yeah, for you maybe, you robbing b*****ds [img]images/smilies/mad.gif[/img]

Rant over . . . have a nice day

P20SPD

iTrader: (1)

top tip i learnt from a bank manager.

repay enough so that you only have one more payment amount left to go through the bank, then they dont seem to charge penalty interest. it worked for me with his bank about 4 years ago.

TelBoy

But if you've only got one monthly payemnt to make, haven't you already paid of 95% of the loan already?
Maybe i'm missing something, but where's the benefit in that?

camk

I think this is the difference between APR and Flat rate(when you see both), the APR is higher if they do NOT reduce the capital amount the interest is charged on but just calculate the full amount of interest on the WHOLE amount for the duration of the loan. If you pay off 1 year early on a 2 year loan then you should only pay 50% of the interest, however smallprint rules.

Regards
Cammy

ChrisB

I think what P20 is saying is...

You have paid 9 of the 48 months. Rather than pay 39 months off if one go to finish the loan, you pay 38 leaving one normal payment to come out at the end.

P20SPD

iTrader: (1)

The point is if you get the right loan, they charge interest on a daily/monthly basis, so therefore if you pay off early they dont get any reward. To compensate them they often say settlement = outsatnding + 1 or 2. 1 or 2 being 1 or 2 monthky repayments.

However if you get the wrong loan, they charge all the 4 years, in this case, interest up front, hence why after 9 months you only appeared to have paid off £25.

What i would do is use the money you were going to pay it off with to subsidise your monthly repayments for say 6 months and then get a settlement figure, the figure should be alot differen then.

Sorry i should have made myself clear.

P20SPD

iTrader: (1)

ChrisB correct therefore no penalty.

The settlement figure they are quoting will often have the 1 or 2 month penalty premium included. This is the way around it.

oh yes and they are sharks, its how they make all their money. its why they subsidise the rates IMO because they know most people settle early, therefore recuoping the susidy by way of a penalty.

[Edited by P20SPD - 8/13/2002 11:43:19 AM]

NotoriousREV

The way most loans work is that in the beginning you're paying minly interest and very little off the capital. Say your paying £100 pe month, at first you'll be paying £99 off the interest and £1 off the capital. By the time you're 50% of the way through the loan you'll be paying £50 interest, £50 capital and by the end it's £1 interest £99 capital. It's called interest loading and is very, very common on personal loans.

*figures are for illustrative purposes and are not accurate

TelBoy

P20/Chris - cool, now i understand. Nice theory.

But surely banks now have a way round this? I wouldn't want to take out a 5 year loan on this premise and then find out they could penalise me some other way!

MattN

DJDunk,

Not wanting to interfere, but you sure your figures are right?

Only reason I ask is if your paying off circa 170 a month over 4 years then the loan must be about 6.5 to 7k (depending on APR). This means you should be paying off about 110 a month in capital (assuming it's a normal personal loan).

If you mail me the details I'll take a look at the numbers for you.

DJ Dunk

iTrader: (5)

Thanks for the advice. If you don't mind I'll give you the full details . . . .

Loan taken out on 17/10/01:
Loan amount = £7000.00
Creditcare = £1473.50 (redundancy protection)
Interest = £1823.46
TOTAL = £10296.96

Okay, so I have made 7 payments of £214.52 as you do not have to pay for 2 months.

The total outstanding is £6975.10 which includes 2 months worth of interest.

Does this seem right ? I have paid £1501.64 in repayments so far leaving £8795.32 over the whole remaining period. By paying off early they are charging me £1820.22 in extras. How can I get around this ?

Forgive me if I am misunderstanding something here.

Thanks

NotoriousREV

Having worked for a large loan company I can advise you to never take out the loan protection, you can always getter a cheaper product through your bank or financial advisor that will protect your loan payments. We used to refer to Creditcare as The Most Expensive Life Insurance In The World...Ever

DJ Dunk

iTrader: (5)

Wish I'd never bothered with the creditcare. It would appear that this is where I am being ripped off.

P20SPD

iTrader: (1)

Ahh that explains it. You pay this up front and no refund IIRC. Never take it out. Just work on the premise that you can sell what you borrowed the money for, if you can.

DJ Dunk

iTrader: (5)

Whats the catch with the Cahoot flexible loan ?

Seems too good to be true. Such low monthly interest rates.
£1000 over 5 months and you only pay £17.05 in interest. Am I missing something ?

JoeyDeacon

It would appear it is definitely the loan insurance that is the problem as it seems a one off upfront charge.

Two months interest seems to be average cost of settling a loan early. By coincidence I wanted to pay off my car loan (through Renault Financial Services) after only 3 months and they wanted the outstanding amount owing plus two months interest.

My rule in life is Apart from Household insurance never get any insurance that you don't legally need.

Don't even get me started on how much of a rip off credit card insurance is!

DJ Dunk

iTrader: (5)

Surely they can't charge me for the full amount of creditcare ?

£1820.22 for borrowing over 9 months ?! [img]images/smilies/mad.gif[/img] Total rip-off [img]images/smilies/mad.gif[/img]

P20SPD

iTrader: (1)

Yes they can its a one off premium. The cahoot one works out at about 4% pa flat rate so is matching the bank base rates. Quite could but could be a cathc in there.

Worth asking in writing if they would waiver a proportion of the insurance if you were to settle early.

camk

nearly 25% of total loan amount for insurance, what a business !!!

Roger The Cat

there does not appear to be any issue with the cahoot loan - its flexible! Best and nealry cheapest out there, go get one...

davyboy

Allience and Leicester mate, car loan, job done!

Cars aint worth **** when you have fininshed the loan off anyway.

Borrow 15000
payments 325 per month
Owe 6600 after 3 years.

Jon Jonzz

You can do your own A&L motor loan, by taking a 5 year loan and repaying the o/s balance after 3 years - assuming you use a linder with no early redemption penalties. Also it is not difficult to undercut A&L's interest rate, so it should be cheaper.

Cahoot is structured as a revolving line of credit rather than a straight loan. As already posted, Cahoot is very flexible and the interest rate is quite competitive.

ADP

cahoot are doing em for 7% now! cheap as chips

Jon Jonzz

And Cahoot's credit card is 8.00% - which is the cheapest non-introductory rate, AFAIK.

MattN

what a time for me to lose our connection.

yup, defo the credit insurance.

It does vary but it essentially an insurance premium, you will get a rebate but it's quite low as the risk is higher earlier in the loan. In this case you probably have had a rebate but the early settlement etc. has nullified it.

Also, watch loans where you have a couple of months before you start paying, sounds good, but they charge you interest so by the time your first payment is due you owe several hundred quid more than your original loan value.

The reason most charge 2 months interest is by law they can't charge more than 3 months, 2 seems to be the norm to make themselves look like they are trying to SAVE you money.

IMO - get a credit card with a big limit and low rate, and min payment of 2%. Easy.

NEVER take our any sort of protection
NEVER take a payment holiday unless it freezes the interest! (which it normally doesn't)

Better luck next time, if you need dvice, let me know.

Matt.

PS any advice should not be considered financial fact or taken as anything other than my opinion!

47 NAT

Isnt there any companies out there who can offer payment protection at a reduced price independently instead of having to take "the kick in the *****" payment protection policy when you take a loan out?

I only ask as a mate went through a load of grief with a certain High Street Bank and they specifically said (in words, not writing) that you wont have to sign on as un-employed in the event that something happened...They lied or should I say misled him

For someone who earnt good money he found it to de-grading to sign on for £450 per month...and paid it himself for 8 months till he found another job crazy really

MattN

you don't need payment protection period.

If you were made redunant or couldn't work because of an illness etc. As long as you make a reasonable offer to the loan company to make payments then no court in England would say you must keep up full repayments, besides it's not secured on anything, by the time they take you to court etc, roof over your head , food in your mouth etc are more important in a courts eyes than a loan repayment from a profit making organisation. they may as well have taken your offer. That's what really annoys me, you have the credit consumer act to protect you (to a degree) so why pay 25% of the loan in extra protection.

Take the extra you would be paying and put it in to a savings account, should you run in to difficulties you have a small fund to help you out.