Took out hire purchase 31/03/09 for £22,500 over 3 years.
just received my annual statement and they have added the finance over 3 years (@7.5%) as the "opening balance" - giving £25,979.60
Surely this is the wrong way of presenting it - this means that after payments they now say the balance as at 29/03/10 is £20,405.
Surely the interest is only added over time and if I was to ask for a settlement figure it should be much lower as only 1 years worth of interest would be added on?
Interested as thinking of changing jobs and would have to sell But if I did I would not be happy paying the full whack of interest off?
21st Apr 2010 4:23 pm
PaulP
Member Since: 04 May 2007
Location: Barcelona
Posts: 4317
I'm pretty sure this sounds about right....
When you take out an agreement on financing 'x' amount over 'y' years, the total amount is 'x' plus 'y' years worth of interest.
That's probably why the statement shows such a high amount. It is correct though - the statement doesn't show a closure figure, just the financial position of the loan at the current time within the loan period.
I'm sure that you'd only need to pay the total interest on the original amount 'x' up until the day that you settle the finance. They will probably only provide you with this figure when you officially request a settlement amount from them.
When you do, you should see that the interest for the rest of the agreement is deducted from the total amount giving you a lower figure...
Or something like this 2006 Discovery 3 TDV6 SE AutoBuckingham Blue 2007 Golf GT DSG
Yes, this is how a fixed interest agreement would typically be displayed. If you multiply your monthly figure by the number of instalments left than you should arrive at the same figure - hence the balance of the amount outstanding.The older I get, the more I realise that people confuse wrinkles for wisdom
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I'm sure that you'd only need to pay the total interest on the original amount 'x' up until the day that you settle the finance. They will probably only provide you with this figure when you officially request a settlement amount from them.
When you do, you should see that the interest for the rest of the agreement is deducted from the total amount giving you a lower figure...
Wishful thinking I'm afraid. Depending on the small print of the agreement, they may offer a (partial) rebate of interest money already paid. This is very different to the actual amount of interest already paid on an outstanding balance. They have to make money after all........ The older I get, the more I realise that people confuse wrinkles for wisdom
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21st Apr 2010 4:44 pm
PaulP
Member Since: 04 May 2007
Location: Barcelona
Posts: 4317
Sorry John I don't think I explained myself too well (probably not helped by the fact that I'm useless with this stuff)...
I meant that if you cancel/settle after 1 year of a 3 year agreement, then you wouldn't have to settle the interest that would have been payable during year 2 and 3....
This amount of unpaid interest should be deducted (more or less depending on the terms of the agreement) from the opening balance (capital + fixed term interest) when you settle.
Does this sound more like it?2006 Discovery 3 TDV6 SE AutoBuckingham Blue 2007 Golf GT DSG
21st Apr 2010 5:08 pm
NeilD
Member Since: 01 Dec 2008
Location: Sunny Surrey
Posts: 4845
May ring them for a settlement figure tomorrow just to put my mind at ease - you'll never guess what i do for a living...... an accountant.. Crap at personal finance though
21st Apr 2010 6:01 pm
pom
Member Since: 10 Feb 2008
Location: Worcestershire
Posts: 1790
NeilD wrote:
I thought front ended interest had been outlawed?
It might be different now than from a few years back.
certainly not on mortgages. Not sure on HP though.
Rebate is equal to the amount of the interest due on the balance being repaid over the notional remaining term, less the interest due in the next 1 month and 28 days (max). The days of the dreaded "rule of 78s" settlement calculation are long gone. Consumer Credit Act (CCA) was amended in 2006 and the early settlement regs amended in 2004 to do away with that sort of robbery.I know it's not considered "kind" to say no these days, but no. Just no, ok? And if it's not ok, still no.
Yarp, but remember that the interest accrued to date has been accrued on £22500 for 36 months, then on £22,500 plus one months interest less one months payment, then.....
In other words it's WAY better than it used to be, but you still pay proportionally more interest in the early months of the agreement as that's when the largest amount is outstanding for longest.
There's a couple of good calculators available online or you can download the "beast" from the OFT website:
Be warned, this is a very technical calculator. Took me 6 weeks to model it for an insurers website I had a hand in developing.
There are more user friendly online calculators - I'll see if I can turf on out for you.I know it's not considered "kind" to say no these days, but no. Just no, ok? And if it's not ok, still no.
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But if I did I would not be happy paying the full whack of interest off?
Crap at personal finance though
