Chris5-0

I'm looking to pay off a loan i was 'advised' to take out a couple of yers ago. Only problem is after getting settlem,ent figure it's actually 3 grand more than the loan in the first place due to early payment penalties etc!!!

Anyone any ideas of how to get round these clauses, pay off half every month til its all gone?

I'd be happy to put the money into an account earning interest whilst making the payments out of it, will this help at all??

Any help greatfully accepted!!!

Chris.

pslewis

I think you are shagged if the terms and conditions made clear the early redemption figures .... pay them or continue with the loan.

And be more careful with loan applications next time!

Were you 'missold' the loan??

Pete

paul-s

How bigs the loan ? Why are there penalties, is it a home improvement loan on top of a mortgage ?

normal interest pens on these loans are 6 months interest, so unless its a massive loan, pens shouldnt be that severe ?!

greenlightracer

OUCH! surely its cheaper then just to keep paying it off ? in the meantime put the money away in high intrest account and make some money out of it ?

Cant see any other way other than pay a lawyer to find a loop hole ?

Brit_in_Japan

This is a problem with many loans, the devil is in the small print. They expect to get the same return even if you pay back the loan early. Therefore there are payment penalties to make up for their "lost profit". Unless you die (bit extreme I know) there's not a lot you can do as far as I know.

If you took out the loan after 31 May 2005 then they can charge you a maximum of 30 days penalty if you settle early. It's a good move for borrowers, but it doesn't help you I'm afraid.

Many finance companies now offer loans which do not apply penalties if you pay them back earlier, but again it doesn't help you in this case.

Do the sums showing what penalty for paying back early vs amount to be paid back if you continue to make payments. It might still be worth paying the penalties. If you don't fancy thet, the best you can do to minimize outgoings. Do you have payment protection insurance? If so, you can cancel it because you have the money. Put the money into a high interest account and make as much on the interest as you can. Change the direct debit instruction so that the money gets paid of of that account, not your usual account. That will stop any temptation to draw on it for other things.

You might also find this interesting, this is often how finance companies work out how much you still owe them:-
Rule 78
This applies to fixed-sum loans taken out before 31 May 2005 and are regulated by the Consumer Credit Act 1974.

Rule of 78 is a way in which some lenders will calculate early repayment costs.
It works out how much interest you should have paid at any time during the repayment period of a loan. Its main feature is that the interest is not spread evenly over the payments during the term of the loan. Under rule of 78 you pay more interest in the beginning of a loan and as each repayment is the same size, the part paying off the capital is smaller in the beginning of the loan increasing over time.

The number 78 is based on the 12 months of a one-year period. When the 12 months are added together (12+11+10+9+8+7+6+5+4+3+2+1) you get 78. This means that if you have a loan to be repaid in one-year, the lender will expects you to pay 12/78ths of the interest in the first month and 11/78ths in the second, continuing like this until the final month.

If the loan is paid off early, the lender may use the rule of 78 to determine how much interest you do not have to pay. In many cases, due to the interest element being larger in the repayments at the beginning of the loan, a large amount of capital can remain to be repaid.

fast bloke

There are a number of other things that loan companies do to stiff you. Front loading loan payment insurance is a favourite. You take a 20k loan and they bung another 10k on fees and insurance on it. You pay it for three years, you still owe 25k.

Chris - YHPM

Jamo

iTrader: (23)

also one to watch for now, as a trick with some banks that they wont tell you but is in the small print, if you take insurance with your loan, they lend you the money for the insurance, add it to the loan and charge you interest on the insurance!

if you took a £25k loan with a bank (that I no longer work for and cannot mention as I have signed a comprimise agreement with) and took accident sickness unemployment and life cover, with a deferment period of 30 days, and the term was over 7 years, you would end up paying back £48000!!!

Scooby Roo

You could always pay off a majority of the loan [remember to read the small print as you may ot be allowed to do this, many companies are wising up and have done for some time]. You can pay off all the loan except say £1 and the next month repay and settle your loan amount early, which happens to be a pound. They will then add a early repayment charge calculated on the £1 not the remaining loan amount.

Long shot but has been done before.

Good luck

Roo