Rule 78 unregulated agreement

[san.s]

Hi,

Im new here and wondered if i can get some help.

 

My wife and I took out a remortgage in Oct 2004 for £22k. Payments at £333.06PM over 180 months at a eye watering 17.9%. We were not aware that the finance company were using the Rule 78 system until a few years ago. Since last year we have gone into arrears as we could only afford to pay £200pm.

 

Last statement in February 2013: Balance was £28,699.76 and arrears balance £2,388.02

 

The original agreement has no mention of Rule 78 so I need to know if their practise is illegal and if we have a claim of any sort.

 

Help!!!

[ims21]

How do you now the rule of 78 is being used?

[san.s]

Because when I questioned how interest was being applied they sent me a table of rebate fractions by rule 78 explaining that was the method being used

[ims21]

Well rule of 78 was a method used when loans were settled early and tended to penalise the borrower on settlement.

 

For a loan which is ongoing you should just be charged interest on the amount outstanding from month to month an of course on any arrears that have accrued.

 

If you wanted to settle the loan and they used rule of 78 to calculate the settlement figure you could challenge it as being an unfair term.

[san.s]

So for settlement, would they have to apply rule 78 till the year 2010 and anything after that would be based on current regulations? O

[ims21]

If you wanted to settle now then I think you would have a strong case to argue that the lender can only charge two months interest as an early settlement charge.

 

Some people get confused with how interest is actually charged over the lifetime of a loan. In the early months of the loan there is a large amount of capital outstanding and so more interest is apparent in the early years of a loan. As the loan progresses more of the capital is paid off so the interest amount reduces.

 

Interest isn't charged in equal amounts per month.

[san.s]

Thanks for the advice