The ultimate vehicle, car finance, loan, credit guide

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For legal reasons before we even start this is a simple paper for open discussion. Any opinions expressed do not in any way form advice, guidance or other similar. Treat it as a work of fiction, legals over! We welcome comments and your stories concerning any situation you have come across.

You have a car, vehicle on finance and think it may be worth less than you owe on it. Negative equity for cars.
Check how much they are selling for, ring a couple of dealers or try the online quoting sites. Never know it may not be as much as you think …. And if that does not work read on ….
The very first thing you need to do is dig out all the paperwork concerning the agreement, this is essential. Contact the finance company or bank concerned if you cannot find the originals and ask if they would send you a copy free.
Now it’s times to check the small print, you will be looking for a section that gives you your termination rights. A normal car finance agreement secured on the car has a HALF rule. If you have paid HALF of the agreement (for example if you had a car on finance over 48 months – 4 years and you have been paying up to date for over 2 years) you normally have the right to simply hand the car back to the finance company and terminate your agreement. If your car is worth less than the amount left to pay it could be a consideration
Can you now get a better rate?
You do not have to wait until the end of a finance agreement to try and either renegotiate or change your agreement. You will need a settlement figure and the only people who can give you this are you finance company. They may insist you write in to acquire this (They will be subject to the Data Protection Act) Once you know exactly how much is left to pay you do have a couple of options
Have you been a good customer and paid on time? Try calling them and asking to lower the payments. Be very careful here as you could end up paying more if you extend the agreement. Also changes often incur “Administration fee’s” try and get these for free (by asking!)
Once you know you settlement figure if may be worth talking to other brokers and finance houses to see if you can lower the rate you are paying (Compare this again to changing your mortgage) you may get a lower rate on the balance left to pay than you were paying already.
Stoozing and 0% credit card offers. If you can apply for credit cards and you can get 0% interest free for a period (even if you do have to pay a 3% charge) you could swap the balance pay the minimum payment and change again at a later stage.

The Rule of 78 – extracts from
This applies to fixed-sum loans taken out before 31 May 2005 and are regulated by the Consumer Credit Act 1974.
Rule of 78 is a way in which some lenders will calculate early repayment costs.
It works out how much interest you should have paid at any time during the repayment period of a loan. Its main feature is that the interest is not spread evenly over the payments during the term of the loan. Under rule of 78 you pay more interest in the beginning of a loan and as each repayment is the same size, the part paying off the capital is smaller in the beginning of the loan increasing over time.
The number 78 is based on the 12 months of a one-year period. When the 12 months are added together (12+11+10+9+8+7+6+5+4+3+2+1) you get 78. This means that if you have a loan to be repaid in one-year, the lender will expects you to pay 12/78ths of the interest in the first month and 11/78ths in the second, continuing like this until the final month.
If the loan is paid off early, the lender may use the rule of 78 to determine how much interest you do not have to pay. In many cases, due to the interest element being larger in the repayments at the beginning of the loan, a large amount of capital can remain to be repaid.

Early settlement penalty
This applies to fixed-sum loans taken on or after 31 May 2005 and that are regulated by the Consumer Credit Act 1974.
If the loan is paid off early, the lender may charge a penalty (subject to a set formula) of 30 days or 1 calendar month. This applies when the original loan term is more than 1 year and the advance is £25,000 or less. For terms of 1 year or less, no redemption penalty is payable.
This penalty is set out in the rules governing repaying loans early and is covered by the Consumer Credit (Early Settlement) Regulations 2004.

Would this affect your credit status or your ability to gain future credit?
The jury is out on this one. Certainly going back to the same finance company would probably prove fruitless, they have after all probably been left with a vehicle they have had to send to auction and lose money on, but would / do they register this with the credit references agencies?  [could do with comments from anyone who works in the finance industry please]

If you cannot find section, small print etc
Did you take out car finance? Or a personal loan? Maybe a loan against the house? All would probably not contain the facility. Only thing you can do is skip to the always do this bit! Section.

Payment protection, PPI, PPP, Redundancy cover, sickness cover etc
It seems to be the big thing lately, much too detailed a subject for here but have you ever googled “reclaim payment protection”

Always do this bit!
If you do not ask you do not get, simple. Always ring your finance company, bank, etc and ask if there is any way they can help as soon as is possible. Explain the situation clearly (have written notes prepared beforehand, think of what you can afford and write it down) and honestly. Quite a few companies have a “customer in distress” service for want of better words and they can sometimes lower the interest rate, reduce payments or let you know of any assistance they can offer. It is in their best interest to help, literally it means they will be getting something rather than nothing. You may even think “they were ok, they helped” go back in the future and they think “Had problems but sorted them out” and get credit again. Make sure you keep all letters they send, make a note of names on telephone calls and make notes of what was said / agreed. If it really comes to the ultimate court action you can at least show you tried!

Credit were credit is due, we have used inspiration and some comments from numerous sources. We have given the credit right here.
Rule of 78 explanation -

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