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Secured Loan : Early Settlement penalties


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Can anyone help with information or pointers, please?


I have a secured loan that I wish to settle. Although it is for an amount over £25,000, the documents state that it is a loan regulated by the Consumer Credit Act.


The loan was originally for a 10-year period, on an interest-only basis, as it was always my intention to repay the capital amount as soon as possible to terminate the loan arrangement.


At the time that I took out the loan, I was told by the broker that as the loan was regulated, that the maximum redemption penalty on early settlement would be 1 month's interest, with the proviso that I had to give 1 month's notice in writing in advance of settlement.


Two issues have arisen.


1) A clause in the loan document - and the settlement amount in the redemption statement - suggest that I am being required to pay an early settlement penalty of almost £2,500, despite my being told that under the regulations I would only have to pay one month's interest (approx. £400).


2) In trying to find the appropriate legislation today, I have twice come across a provision that reads, (e.g. in the FISA Borrowers Information Guide):


"The settlement figure will be calculated to a day 28 days after the day the lender receives the request for a settlement figure, although consumers may request a later date if they wish. If the original loan term is for more than one year the lender may defer the calculation by one month (or 30 days)."


That last clause suggests that the lender can in fact levy a further month's interest at will. Does anyone have any light to shed on this? It seems very unfair that a borrower should give a month's notice, but a lender can elect (it seems) to calculate the settlement amount at a date up to a further 30 days after expiry of the notice period - thereby levying further interest payments despite that the notice period has elapsed.


Has anyone else come across this?


No. (1) above is the one that is worrying me most, obviously, as it will leave me £2,000 poorer. (2) is *only* going to cost a further £400+ :eek:


I'd be very grateful for any pointers. And also for any advice re. the phrasing of my letter of request to settle the loan early. I do not want to fall foul of some other trap, and find myself parting with yet another month's interest - or more - because my letter does not tick all the boxes to be effective for the purpose.


Many thanks in advance for any advice.




PS: I did find an article from July 2005, the relevant section of which reads,


"4. Pay off early


Around seven in ten borrowers pay off their loans early and until recently, were usually rather shocked by high early settlement costs. This was because lenders used a complicated method of calculation which was entirely in their favour. Fortunately, the government has put a stop to it and new loans taken out 1st June can only incur early settlement charges of, at most, two months interest. Unfortunately, existing loans, for terms of ten years and under will only be covered by this rule from 31st May 2007 and those for terms of more than ten years won't be covered until 31st May 2010.


The author doesn't say what legislation it is that provides that a maximum of 2 months' interest is payable on a regulated loan. She refers to "new loans taken out [from] 1st June" (and presumably this was June 2005, as the article was written in July 2005). I do recall being told, however, that it was legislation that came into force in April 2008 that brought (some?) loans over £25,000 into the "regulated" catchment. And certainly my loan quotation documents referred to the loan as being a "CCA Regulated Fixed Term Loan".


Thanks again for any pointers.

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serendip7 I can now see why you are in such a pickle.


I HATE de-constructing Acts, it's a nightmare.


I have looked at the: The Consumer Credit (Early Settlement) Regulations 2004


The Consumer Credit (Early Settlement) Regulations 2004


I assume you are talking about section 6:


Deferment of settlement date

6. Where the agreement provides for the credit to be repaid over, or at the end of, a period which is more than a year after the relevant date, the settlement date for calculation of the rebate may be deferred by -


(a) one month, or


(b) where the length of a month's deferment would be more or less than 30 days and the creditor so elects, 30 days.



Basically yes it would mean the Creditor can defer the settlement date and get an extra payment.


But....... I would say that would be a small price to pay depending on the rebate you get.


Have you asked them for a settlement figure? If yes have you checked it?


On the act it gives some examples at the bottom of how they "should" work out your settlement figure.


As for the:

I am being required to pay an early settlement penalty of almost £2,500


I would either write back or ring them and ask them to state under which Act (and specific parts of it) are you legally obliged to pay that penalty.


To be honest i'm not sure. Try contacting either:


National Debtline


Office for Fair Trading


They should be able to give you a definitive answer.

Edited by BAYV explained
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