Car Finance Query on Interest

Honest John Back Room » Legal matters
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Tue 27 Sep 2011 23:34
Car Finance Query on Interest - fd1972uk

Hi,


I'm wondering if anyone can help.

I'm looking at purchasing a new car and was asked to get a final settlement figure on my current car/loan as it is classed as a Personal Loan (wasn't aware, thought it was a car finance part of Arnold Clark).

Where I'm really confused is the interest.

Amount borrowed was £12700.88, interest amount £2857.72. Taken over 60 months (so far made 42 payments).

I have 18 more payments (17 @ £259.30 and 1 @ £457.31 = £4865.41). I phoned up for a final payment figure and they quoted me £4676.25, a saving of only £189.16? However according to my paperwork it states if I wanted a final payment figure after 45 payments it is £293.69 per £1000 borrowed/£100 (12.7) borrowed therefore that would give me £3729.86 to settle, however in terms of 14 payments @ £259.30 and 1 final @ £457.31 that comes to £4087.51. Why would I save £357.65 interest, as opposed to paying earlier (3 months) yet only saving only half that amount?

I absolute hate interest with a passion as I never really understand how it works, but this just seems bizarre, unless I'm just not seeing something that is obvious.

Anyone?


FD

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Wed 28 Sep 2011 08:57
Car Finance Query on Interest - Craigdm

Early settlement fee...

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Wed 28 Sep 2011 09:13
Car Finance Query on Interest - fd1972uk

There is no mention of an early settlement in my agreement.

This only thing that does show in early repayment of balance, is that they wil 'allow a rebate of interest equal to the minimum required by regulation".

FD

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Wed 28 Sep 2011 11:17
Car Finance Query on Interest - leaseman

Settlement figures on loan and hire purchase transactions with private individuals are strictly controlled by The Consumer Credit Act. (Regulated Agreements). This allows lenders to use a close approximation to a true actuarial calculation of money costs known as "sum of the digits" or "rule of 78". A small and limited penalty for early termination can be built in to the calculation at the lenders discretion.

To all intents and purposes this method is a fair reflection of the original interest rate ( I calculate 9.1% APR in this instance) of the loan and no more equitable method of calculation has been discovered by numerous parliamentary bodies who have initially rubished the original legislation without understanding the mathematics.

Using a pure sum of the digits calculation your rebate of interest would have been £267 at this stage of the loan repayment period, so the penalty to early terminate is about £78. This is within the limits allowed by the legislation.

I cannot comment on the quoted 45 month calculation procedure without viewing the original agreement but assure you that you are receiving a legally correct rebate at this point.

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Wed 28 Sep 2011 11:32
Car Finance Query on Interest - fd1972uk

Thanks for your reply.

In terms of the 45 month period, it states:-

-----------------------------------

"Early settlement of this agreement - if you choose to settle this agreement early on the dates below the amount you will pay, per £1,000 borrowed (unless you borrow less then £1000, where the amount is based on per £100 borrowed) will be:-

Quarter term has elapsed £707.66

Half Term has elapsed £558.68

Three Quarters has elapsed £293.69

In calculating these amounts, no account has been taken into variation which might occur under this agreement and amounts shown are accordingly only illustriative.

--------------------

Looking at that I wonder if it should only be 12 x £296.69 as opposed to the 12.7 I originally done as it only quotes '£1000' unless the loan was under £1000 (which it wasn't) it would be based on £100's.

I also would think that the last details about the agreement variation would relate to maybe late payments or some penaltys during the course of my agreement, which there has not been one.

I just don't understand how I can have a bigger saving in terms of interest in 2 months time which just doesn't make any sense.

FD

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