Loan - partial early repayment

3DataModem

Does anyone know if there is an obligation on a lender to apply a partial early repayment lump sum at the time of repayment?

E.g. loan for 10k taken on 1/1/10 with interest of 6.49% over 60 months.
Monthly repayment 195.00 approx.

I pay a 3k chunk on 1/7/10 but they simply tell me that this has reduced the term by 15.5 months (3000 / 195). This is mental, obviously if this was the case then I'm better off hanging onto the 3k and using it for the last 15.5 payments myself!

Any ideas?

coylemj

You're right. Based on how they are (not) applying the lump sum, you would have been better off holding on to that money as it is not gong to save you one cent in interest. However you should really have asked before making the payment.

If that 3K and the regular 195 monthly payment had been applied to the capital outstanding on July 1st 2010 it should have reduced the term of the loan by 20 months i.e. it would have been paid off in 40 months.

Read the Ts and Cs of the loan, if the interest rate was fixed then they are within their rights refusing to accept a lump sum payment off the capital which is effectively what they have done.

Given that they are not reducing your interest bill, you would be within your rights in asking for them to return the lump sum as otherwise it constitutes an interest-free loan by you to them.

Formal shorts

Who is the loan with?

3DataModem

MBNA

Formal shorts

3DataModem wrote: »

MBNA

Yuck.

As of June 2010, creditors are only allowed compensation up to a maximum of 1% on partial early repayments (European Consumer Credit Directive.) So had you taken the loan in Jan this year, they could not do what they are doing.

It doesn't sound right to be honest. Assuming you made 7 payments before paying off the lump sum, by my calculations under no penalty it would leave you with 33 repayments. The lump sum should reduce your repayments in this example by close to 20 repayments, not 15.5.

Something tells me the person you were talking to got this completely wrong and didn't know what they were on about. Paying a fee I could understand, but no change at all makes little sense. There could be something different about this also if it is some sort of debt restructure/agreement.

Best advice - ring again and ask someone else. Also ask for a copy of your credit agreement with them. This should give you some insight.

3DataModem

Note: The actual dates and term are different (I changed the details to avoid identification) but the idea is the same.

I've sent them a 'correct' statement with the correct redemption period (one of three letters in total including one registered).

I spoke to the guy today and he was polite and understanding, but i have asked him to confirm in writing what he said.

Every step of the way I have indicated my willingness to repay... but I reminded him today that I now live outside the EU and have pretty much no need for credit in Ireland for the next five years.

Once they respond will post an update. All advice appreciated.

3DataModem

OK I got this resolved after maybe 8 phone calls and 4 letters over two months.

They stuck to their guns, so I asked them to apply the lump sum payment to the next ten payments (essentially to try and get as much benefit from it as possible). They were not happy about this... I was adamant that this was up to me and as I had paid them more than the contractually required amount, they couldn't claim I was in arrears (I had stopped the DD while negotiating) so this wasan option open to me.

It was escalated to some senior person for two weeks. In the end they actually agreed to give me the interest benefit of the prepayment (as a "goodwill" gesture ).

Hooray.

A great result in the end.

Bottom line: they preferred to write off 1200 euro and have regular payments coming in, than give me a ten month payment break and make 1200 more profit. Interesting insight to how MBNA think.

chris85

3DataModem wrote: »

OK I got this resolved after maybe 8 phone calls and 4 letters over two months.

They stuck to their guns, so I asked them to apply the lump sum payment to the next ten payments (essentially to try and get as much benefit from it as possible). They were not happy about this... I was adamant that this was up to me and as I had paid them more than the contractually required amount, they couldn't claim I was in arrears (I had stopped the DD while negotiating) so this wasan option open to me.

It was escalated to some senior person for two weeks. In the end they actually agreed to give me the interest benefit of the prepayment (as a "goodwill" gesture ).

Hooray.

A great result in the end.

Bottom line: they preferred to write off 1200 euro and have regular payments coming in, than give me a ten month payment break and make 1200 more profit. Interesting insight to how MBNA think.

Ok just be carefull of the write off if thats what they have done. It will be noted on the ICB that the bank suffered a loss on the account due to write off. DId they advise you of this?

3DataModem

They can't claim a loss, as the effective APR is > the originally agreed APR.

I will be checking my ICB record after the dust settles and clarifying this via the Data Protection commissioner if required.

chris85

3DataModem wrote: »

They can't claim a loss, as the effective APR is > the originally agreed APR.

I will be checking my ICB record after the dust settles and clarifying this via the Data Protection commissioner if required.

data protection commissioner why? All details are recorded there and you would need to complain to regulator (following exhausting the banks internal procedures).

You said they preferred to "write off" €1200. If you got these words from MBNA then i will take slim odds that it has been marked as a loss.

Effective APR > Original agreed APR. doesnt mean anything. Sounds like a fixed rate loan form the thread and any reduced figure accepted could be noted as a loss. Fixed rates generally dont allow partial/early repayments, only variables do which is noted in the Consumer Credit Act.

Certainly something i would be checking firstly.

3DataModem

chris85 wrote: »

data protection commissioner why? All details are recorded there and you would need to complain to regulator (following exhausting the banks internal procedures).

Because if a bank put something on your credit record that is not correct, and refuse to correct it, your point of appeal is the Data Protections commissioner.

chris85 wrote: »

You said they preferred to "write off" €1200. If you got these words from MBNA then i will take slim odds that it has been marked as a loss.

I'm not sure what you mean. They are reducing the cost of credit by 1200 to reflect the effect of the prepayment (I'll check the exact wording on the letter). It is a net loss to them (of c. 1200) compared with the alternate repayment schedule I suggested.

chris85 wrote: »

Effective APR > Original agreed APR. doesnt mean anything. Sounds like a fixed rate loan form the thread and any reduced figure accepted could be noted as a loss. Fixed rates generally dont allow partial/early repayments, only variables do which is noted in the Consumer Credit Act.

Agreed... however the APR is relevant as it reflects their total profit on the loan. This is definitely less relevant to the terms of fixed rate loans but is definitely relevant when negotiating a new repayment schedule.

chris85 wrote: »

Certainly something i would be checking firstly.

Absolutely agreed. I am poring over the letter right now.