Got car finance, can I pay it off one month after taking it?

[[OcUK]Gibbo]

Hi there


Quick question, I've taken out car finance just recently, which I am considering paying off early.


THe payment term is 48 months.

But if I say want to pay it off in full say in 1-2 months, can I or would they still be hitting me for a huge amount of interest?

[Rollcage]

[OcUK]Gibbo said:

Hi there


Quick question, I've taken out car finance just recently, which I am considering paying off early.


THe payment term is 48 months.

But if I say want to pay it off in full say in 1-2 months, can I or would they still be hitting me for a huge amount of interest?

Yes and yes.

[[OcUK]Gibbo]

Hi Rollcage

So what will the settlement figure be, the amount I borrowed, plus admin fees?

Or will they throw a few grand extra on for interest even though I'd have only had the finance for 1-2 months?

[Rollcage]

Depends on who the finance is with, and if the interest is front loaded or not.

Give us some details - lender, term, apr, principal, etc.

[Deva Link]

[OcUK]Gibbo said:

Hi there


Quick question, I've taken out car finance just recently, which I am considering paying off early.


THe payment term is 48 months.

But if I say want to pay it off in full say in 1-2 months, can I or would they still be hitting me for a huge amount of interest?

What kind of finance?

If it's straight HP then the max interest charge by law is 2mths. This should be noted in the agreement.

If it's a PCP then that's altogether more complicated.

Ask the lender for an early settlement figure.

[[OcUK]Gibbo]

HI there

Not got paperwork with me.

Lender was Mitsubishi Holdcroft.

Amount borrowed was 21,250 over 48 months.
Total Amount repayable works out too £29,000 (need to check this) something across the whole term.
APR was 11.7% or around there.

I remember reading in the terms it had examples for settling early, such as 1/4, 1/2 and 3/4 term.

I also remember seeing a breakdown which was something like:-
Amount borrowed £21,250
Cost of loan £5500 ish
Fee 1 of £169.00
Fee 2 of £140.00


I remember reading that if settled early one has to pay Fee1 and Fee2 plus an admin charge and plus amount owing.

But thats all I can remember of top of my head.

Monthly payments are around £563, with a final payment of something like £650.

So first payment due next month, I plan to pay it off around May/June.

So will the settlement figure be what I borrowed (£21,250) plus the Fee 1 and Fee 2 minus my monthly installments?

Edited by [OcUK]Gibbo on Wednesday 3rd March 11:48

[Rollcage]

Deva Link said:

[OcUK]Gibbo said:

Hi there


Quick question, I've taken out car finance just recently, which I am considering paying off early.


THe payment term is 48 months.

But if I say want to pay it off in full say in 1-2 months, can I or would they still be hitting me for a huge amount of interest?

What kind of finance?

If it's straight HP then the max interest charge by law is 2mths. This should be noted in the agreement.

If it's a PCP then that's altogether more complicated.

Ask the lender for an early settlement figure.

I had understood that to be the penalty for settling early.

Had understood that there is a rebate of interest calculated, but it is complicated to work out - something to do with the "Rule of 78"?

My info could be out of date though - but I have a feeling it is not quite that simple as two months interest.

[[OcUK]Gibbo]

Deva Link said:

[OcUK]Gibbo said:

Hi there


Quick question, I've taken out car finance just recently, which I am considering paying off early.


THe payment term is 48 months.

But if I say want to pay it off in full say in 1-2 months, can I or would they still be hitting me for a huge amount of interest?

What kind of finance?

If it's straight HP then the max interest charge by law is 2mths. This should be noted in the agreement.

If it's a PCP then that's altogether more complicated.

Ask the lender for an early settlement figure.

Hi there

Yep its definetely HP as there is no huge final payment.

[Rollcage]

The formula for the rebate of interest is -


R = (m(m+1))/ (n(n+1))* K


R = rebate
m = no of months left to pay
n = original term in months
k = Charge for credit


Then

Principal+total cost of loan-rebate-payments made = settlement figure

[[OcUK]Gibbo]

Rollcage said:

The formula for the rebate of interest is -


R = (m(m+1))/ (n(n+1))* K


R = rebate
m = no of months left to pay
n = original term in months
k = Charge for credit


Then

Principal+total cost of loan-rebate-payments made = settlement figure

That don't really help me though really. As I don't know the rebate.

Surely if I pay it off a month or two max after taking it out the settlement figure is gonna be for the amount I borrowed or maybe a bit less due to paying a bit off?

[Rollcage]

[OcUK]Gibbo said:

Rollcage said:

The formula for the rebate of interest is -


R = (m(m+1))/ (n(n+1))* K


R = rebate
m = no of months left to pay
n = original term in months
k = Charge for credit


Then

Principal+total cost of loan-rebate-payments made = settlement figure

That don't really help me though really. As I don't know the rebate.

Surely if I pay it off a month or two max after taking it out the settlement figure is gonna be for the amount I borrowed or maybe a bit less due to paying a bit off?

The formula is for working out the rebate! I reckon it will cost you four or five hundred quid on top of the repayments plus any penalties and fees.

[[OcUK]Gibbo]

Rollcage said:

[OcUK]Gibbo said:

Rollcage said:

The formula for the rebate of interest is -


R = (m(m+1))/ (n(n+1))* K


R = rebate
m = no of months left to pay
n = original term in months
k = Charge for credit


Then

Principal+total cost of loan-rebate-payments made = settlement figure

That don't really help me though really. As I don't know the rebate.

Surely if I pay it off a month or two max after taking it out the settlement figure is gonna be for the amount I borrowed or maybe a bit less due to paying a bit off?

The formula is for working out the rebate! I reckon it will cost you four or five hundred quid on top of the repayments plus any penalties and fees.

HI there

Right so idiot mode engaged.

I borrowed £21,250

So say in two months I settle after 2 payments.

So that would be £1156 off the amount borrowed leaving say circa £20,000 to pay.

But what your saying is basically due to interest my two payments will probably have little effect against the amount owed and because of admins fee the settlement figure will still likely be close to 21k?

Have I got that right?

If so thats good and am happy as got the car very cheap and only did it this way because I am still undecided as to whether I am gonna sell my other car or not to pay the finance of this one or just keep them both?

[Deva Link]

Instead of racking your brains trying to figure it, why not just ask them?

We looked at a Toyota Yaris for daughter a couple of years ago which had a £2K contribution towards finance from Toyota if we took it on their finance.

The salesman said it was absolutly standard paractice to take this and then immediately settle the HP - there was a bit of uncertainty about the interest charge but he said (and I checked) that absolute max would be 2 mths. Bear in mind that's interest, so the actual amount would be peanuts. Obviously I'd have to repay the principal amount too and there were a couple of document charges, but they were only about £150. In the end we didn't buy a Yaris though, so I never tested the process.

The other thing to bear in mind is to check the figures once the finance compnay provides them - apparently even these days most HP agreements wouldn't stand up in court.

There are some examples in the Regs here: http://www.bailii.org/uk/legis/num_reg/2004/200414...

[TheBaj]

Hi Gibbo,

I've used this online calculator recently which gives a fairly good idea of your settlement amount - http://www.financecalcs.co.uk/Calcs/Settlement.php

Obviously calling the finance company direct will get you a proper figure.

Cheers

[[OcUK]Gibbo]

TheBaj said:

Hi Gibbo,

I've used this online calculator recently which gives a fairly good idea of your settlement amount - http://www.financecalcs.co.uk/Calcs/Settlement.php

Obviously calling the finance company direct will get you a proper figure.

Cheers

Just came to £20,900 which is what I was kind of hoping for and expecting. But I shall call them as well but its just re-assuring to know as I dont have the paperwork to call them right now.