Early Car Loan Termination Huge Fees

TNTomer on 02/06/2022 - 12:29
Last edited 02/06/2022 - 13:11

Hi Ozbargain community,

Reaching out to you to see if I have potential to further save myself thousands of dollars.

I recently took out a car loan for $85,000 with a small finance company (I'll name and shame if you think what they are doing is extortionate). 6% interest, 48 month term.

Due to financial reasons I need to payout the loan early (only 3 months in) and I have the cash to do it anyway. The finance company is claiming a payout figure of $88,000 even after 3 months of repayments at $2k each month. I looked up an amortization schedule and can clearly see that I would owe approximately $78,667.80 after three monthly repayments.

I spoke to the company and they claim that as a commercial loan they charge the interest upfront for the term of the loan so paying it out early would still incur interest for the entire term of the loan. They claim that the contract clearly states $97,811 is the total amount repayable but this is presented right after the loan term of 48 months. This is pretty typical that a contract shows how much you would pay throughout the entire loan term.

The contract states the following in the early termination section of the contract:
24.1 The Borrower may terminate this Agreement at any time and request FINANCE to
release the Charged Property provided the Borrower is not in default of any provision under
the Agreement.
24.2 The option in clause 24.1 shall be exercised by the Borrower giving FINANCE written
notice of its intention and by paying FINANCE:
(a) any Repayment Instalment that is then due for payment; and
(b) the Discharge Value of the Goods; and
(c) all other amounts outstanding under the Agreement.
24.3 Upon the exercise of the option in clause 24.1 and after payment by Borrower of all money
due under this Agreement FINANCE shall release the Charged Property from the
mortgage granted in clause 3.1 above.

They sent me an amortization schedule themselves after speaking to them but it literally starts at the max figure of $97,811 instead of the borrowed amount??

Do I have any recourse? I even asked the broker if I was to make early repayments would I save the interest charged and he assured me that I would but after talking directly to the company it doesn't look like even that is possible?

Financial

Comments

  • DashCam AKA Rolts on 02/06/2022 - 12:30
    +35

    I recently took out a car loan for $85,000

    High yield investment!

    • rektrading on 02/06/2022 - 12:35
      -8

      Only if it's a $TSLA.

  • Xistn on 02/06/2022 - 12:36
    +41

    Takes out loan, has the cash…. 0.o

    • [Deactivated] on 02/06/2022 - 13:55
      +4

      Was my first thought…

    • deme on 02/06/2022 - 16:26
      +3

      Cryptocurrency?

    • SF3 on 02/06/2022 - 16:45
      +5

      But wants

      further save myself thousands of dollars.

      Seems counterintuitive.

    • SlickMick on 03/06/2022 - 08:34
      +1

      Is OP referring to a novated lease? The tax advantages balance the interest, so we did that.

      Unfortunately you can't salary sacrifice for a car but pay for it with cash.

      • freedomofspeech on 27/06/2022 - 16:21

        Can I ask you - since I also signed up for Novated - what interests they charge… around 5-10%?

        • SlickMick on 28/06/2022 - 08:16
          +1

          Yeah, I think about 6%

          • freedomofspeech on 28/06/2022 - 09:53

            @SlickMick: and you can recommend novated?

            • SlickMick on 28/06/2022 - 11:27

              @freedomofspeech: We've done a novated lease for our last 2 cars.

              If you were going to have to borrow anyway, and are buying a late-model car, I think it's a no-brainer.

              If you had cash and/ or would be happy with an older car, it's probably not for you.

              It's been 10+ years since I did the maths, but the tax savings covered the interest payments for us. With the price of fuel now I'd have thought it would be even more worthwhile.

              But it sucks to have to pay 6% interest if you had the cash available, so do your own calcs.

              • freedomofspeech on 28/06/2022 - 12:12

                @SlickMick: Thanks alot. Yeah I did calculate too.. and with 50% residual value on 1 year might even make money given the current shortage of cars…

  • Gros21 on 02/06/2022 - 12:36
    +7

    If its clearly in the contract i dont think there is much you can do.

    Plan b would be to sell it see if you can get over 88k for it, put lets say you payed in flated costs and signed a contact you are screwed. Whats the point of a contact if no one wants to honor them and cries foul.

    Unless they targeted you or suckered you in or at a high interest rate. You are out of luck

    • Darayus on 03/06/2022 - 12:02
      +1

      There are a few categories of migrants I had come across, they sign all contracts with smiles without reading anything and the moment they want to back out they start shouting that its foul by another party.

      i had come across with such people at my place of work and I hate them with core now.

      Also never take oral statement by 3rd party if the written documents say contravention.

      • Godot on 03/06/2022 - 21:39
        -1

        Yeah, pffft, migrants. Cool story.

  • burningrage on 02/06/2022 - 12:36
    +29

    One of the problem with car loan is that they crystalize future interests upfront.

    So there is little incentive for you to repay it early and in fact if you do that, they will be the happiest chap on earth because that means they get the full 4 years of interests 45 months earlier!

    This is what many people may not realize as they won't tell you upfront that car loans do crystalize interests ahead of the terms (unlike home loan).

    They scored a jackpot on you unfortunately.

  • Crow K on 02/06/2022 - 12:42
    +2

    " I even asked the broker if I was to make early repayments would I save the interest charged and he assured me that I would but after talking directly to the company it doesn't look like even that is possible?"

    Whatever the broker told you won't affect the legal agreement that you signed, but it's not even clear what you asked and the broker answered (does "early repayments" mean a couple of extra payments over the term earlier? paying out the entire thing in 3 months? etc).

    • t_c on 02/06/2022 - 15:23

      If the broker did advise as such before OP signed the loan, would OP have a claim against the brokers personal indemnity insurance?

      • Crow K on 02/06/2022 - 15:48

        There's a wealth of case law behind this but basically an agent can tell you anything but unless you write that onto the agreement and you both sign next to the extra bit, it doesn't change/alter the underlying agreement. [which seems unfair, but it's exactly as fair as binding people who don't read the agreement at all - the piece of paper you signed is what you're agreeing to].

        "You lied to me and that caused me to not read/change the agreement" would be a separate line to pursue. I wouldn't hold out much faith proving it ["it was important enough for me to rely on to sign the document but not important enough for me to add to the document I signed because I don't understand all of this"]

  • Quantumcat on 02/06/2022 - 12:45
    +16

    You would be better to keep the loan and invest the cash you have rather than let them have it early. I don't think you can get out of paying the interest.

    • boomramada on 02/06/2022 - 13:24
      +8

      Thanks to you OP, I learn something new but ^ is the best advice.
      Just invest your money on something else plus interest rate gonna go up anyway.

      Think as this, when you have $0 and buying $85K car, with extra $6333 (interest) its not much. Just enjoy your ride ;)

  • Drakesy on 02/06/2022 - 12:45
    +12

    Welcome to Ozbargain,
    Taking out a $85,000 car loan when you have the money and then having to pay it out only to complain that they're screwing you over when they're just doing what every other car finance company does.
    Taking out finance on a depreciating asset is the first of your issues there.

    LOgIc

  • rektrading on 02/06/2022 - 12:49

    METRO FINANCE

    Stay away.

    • jorf on 02/06/2022 - 13:13
      +3

      Why? They're doing what every other finance company for this kind of lease does. This is nothing new - OP didn't read the contract properly.

      • rektrading on 02/06/2022 - 13:18
        +12

        Stay away from all of them.

        • reactor-au on 03/06/2022 - 09:37
          +4

          This is the key.

          I'm surprised OP cares, when I was shopping for a car last year all the dealerships wanted to know was how much I was willing to pay per week or month and get very annoyed when I ask about final cost, interest rate, early penalties etc. As if nobody cares for anything but how much they can afford to lose every week.

  • MS Paint on 02/06/2022 - 12:50
    +14

    Lol. You blindly signed an $85k contract?

    With most car loans the interest for the whole term (48m in your case) is calculated at the commencement of the loan.

    There is no incentive to pay it out early.

    Early Car Loan Termination Huge Fees

    I didn't read my car loan contract

    FTFY

    • TNTomer on 02/06/2022 - 13:07

      As much as this may be the case I did read the contract and it doesn't mention upfront interest or crystallization and they didn't provide me with an amortization schedule either. Additionally the broker assured me that it isn't the case and that I would pay less if I make extra repayments or terminate early.

      An early termination fee I would understand and would probably be okay to pay but that wasn't on the contract either.

      • MS Paint on 02/06/2022 - 13:33
        +4

        they didn't provide me with an amortization schedule either

        Initial amount + 48m interest / 48

        There's your schedule.

      • spal on 02/06/2022 - 14:05
        +3

        If that being the case, why don't you contact Financial Services Ombudsman. Also, this could be deceptive conduct and could be caught up under the consumer protection laws. Speak to Consumer Affairs equivalent in VIC. Although, you do mention 'commercial loan', not sure if you have signed off some of your consumer protection rights by opting for a non-consumer loan. Best to ask them though. There are some standard disclosures required in consumer loans, like the comparison rates for home loans. No harm in asking in other forums. This is a lot of money. If not, invest the money, and use the returns to pay off the loan. Investment might return greater than 6%.

      • burningrage on 02/06/2022 - 14:19
        +1

        You will find almost all car loan is like this. Whether or not they give amortization schedule, that's irrelevant although I must admit, it is unusual and if they didn't provide you one, it should be a red flag straight away.

        And as I said above, no one will say that the interest is upfront because obviously that's a tick off and contract is your only salvos.

        EDIT: I see from the OP above, you were already provided with amortization schedule.

  • spackbace on 02/06/2022 - 12:54
    +3

    Lol…

  • mbck on 02/06/2022 - 12:54
    +2

    Keep the loan.

    Or lose a bit to buy a house?

    Is the business called….metto finance? Lok

  • Unorthodox on 02/06/2022 - 12:54
    +3

    What high yield investment vehicle did you purchase?

    Also, yes this is very normal

  • garetz on 02/06/2022 - 13:02
    +4

    Why did you not read the contract before actually agreeing to it ? If you did not understand the contract before signing it, that is on you, you had ample opportunity to take it to a solicitor and have it explained to you before signing it.

    • TNTomer on 02/06/2022 - 13:08
      -1

      The contract looked normal and didn't mention anywhere that I would need to pay the full term even if terminating early. Hence why I am asking.

      • Keplaffintech on 02/06/2022 - 14:36
        +5

        That is normal in any fixed loan, including fixed home loans - that's probably why the contract looks normal. If you could get a fixed loan but have the option to pay it off early, you could arbitrage the system and make money.

        • burningrage on 02/06/2022 - 18:58

          It's a bit different to Fixed Home Loans. Fixed Home Loans allow you repay an extra say $10k-20k per annum and its calculation of interest is still based on the balance of the loan (even when reduced by $10k-$20k).

          A car loan won't even allow you to repay early with reduced interest. The full interests over say 4 years will still be levied.

          But I get your point.

          • Keplaffintech on 03/06/2022 - 15:08

            @burningrage: Yep sure, banks tend to add this as a 'feature', but yeah they limit it to say 10k for the reason I described. This also limits the impact given the loan will be like 50x more than that. It would be like a car loan saying 'you can repay an additional $1k early'

  • Venustrap87 on 02/06/2022 - 13:05

    Why did u sign when you already had cash to pay it

    • Drakesy on 02/06/2022 - 13:14
      +2

      INB4

      BeCauSe wHy SpeND YoUr MOnEy wHEn yOu CAn SpENd SoMEOne ElsE's.

      or

      BeCAuSE i CaN EaRN MoRE On STocKS/CRyPTo

      And now has to pay it out early due to financial reasons

      But yeah, it's illogical.

      • RMBC on 03/06/2022 - 11:16
        +2

        Not at all, there are often deductibility arbitrage, especially with businesses. For example if I can keep that cash in a personal mortgage offset account against my home rather than use it for the purchase of a tax deductible vehicle, the post tax difference is often beneficial. One is tax deductible debt, the other isn't

        Whether that applies here, who knows. The biggest thing to take from here is always read, and understand, your contract

    • jorf on 02/06/2022 - 13:24
      +4

      He probably didn't have the money at the time - probably sold it after realising that paying $2k/month for a car is f'n stupid and now just wants to pay out the loan as if nothing happened. Tip for OP: doesn't work that way.

      • Drakesy on 02/06/2022 - 14:14

        The OP came across $85k in 3 months?

        • jorf on 02/06/2022 - 17:25
          +3

          .. by selling the car that he took out a $100k loan for.

  • thatonethere on 02/06/2022 - 13:08

    Those places aren't a charity for your convenience.

    • TNTomer on 02/06/2022 - 13:10

      I'd obviously still be paying interest on the amount owing for the duration of the loan. I wouldn't even mind reasonable early termination fees. But they never mentioned in the contract crystallization of future interest.

      • boomramada on 02/06/2022 - 13:38
        +7

        Question is, before signing the contract did you ask them, What are the fees you have to pay if I need to terminate the loan early? and what were their answer ?
        BTW almost same thing apply when you quiting from fixed loan to variable home loan.

        • TNTomer on 02/06/2022 - 13:39

          Yes I did ask what are the fees, I was told no fee for terminating early. But wasn't told that I would owe all future interest even after I terminate. And it doesn't mention that in the contract as far as I can see.

          • boomramada on 02/06/2022 - 13:55
            +3

            @TNTomer: So they were half correct, but not told the full story. Well chat with afca/accc and see if you have some grounds otherwise its just a one of those life mistakes.

          • burningrage on 02/06/2022 - 14:26
            +1

            @TNTomer: From experience, there is no early termination fee as it is quite obvious, they already charged future interests ahead of time.

            By all means, speak to the Consumer Affairs but do really read your contact carefully. It will state words to the equivalent of all future interests payable included in the loan repayment. I have seen it myself.

            Maybe in the Interest calculation method section. I just had a look at mine which was 10 years ago, it said…

            Interest rate x%
            Total amount finance $xxxx
            Total Interest Charges Payable $xxx
            Total amount repayable $zzzz ($xxxx+$xxx, not written obviously but you can work it out).

            The key word here is the amount repayable.

            Here is another wordings to that effect:
            "You must pay the repayment amounts we require. The details set out an estimate of each repayment amount. For all repayment plans, we calculate the repayment amount so that the LOAN and ALL INTEREST CHARGES (and fees) are repaid during the loan term"

            "If you have chosen a repayment where all the payments are no approximately equal, then the amount of principal will be REDUCED during the loan term…."

            That second clause will ensure even though you want pay more than required, it will be applied against future interest first.

            Truly sir, you have been had front and back

            • TNTomer on 02/06/2022 - 15:09

              @burningrage: Thanks for your info. In reality it doesn't mention anything like above in my contract. But it does say loan term 48 months and then amount repayable $97k.. but any other regular loan contract would state what the total predicted amount would be if you just meet minimum repayments. It doesn't say minimum amount repayable. My home loan had the same info on the contract.

              • burningrage on 02/06/2022 - 19:03
                +1

                @TNTomer: The key word here is the amount repayable $97k. It is a declaration of hard liability.

                No home loan will ever say the amount repayable over say 25 years of a $100,000 house to be a specified say $200,000. It will never say that and I guess that's why we have consumer protection.

                The reason is simple. Anyone would be allowed to repay higher and thereby finishing earlier with reduced interest. To make a unilateral declaration the amount repayable is a fixed amount means exactly like your situation, no one will be incentivized to repay higher amount and get reduced interest.

                It's also dangerous too and can lead to financial difficulty which is why home loan is a regulated loan.

  • Seraphin7 on 02/06/2022 - 13:09
    +5

    I recently took out a car loan for $85,000 with a small finance company (I'll name and shame if you think what they are doing is extortionate). 6% interest, 48 month term.

    I wonder what they did to extort you? What power did they have over you to force you into agreeing to this loan, presumably otherwise against your will?

    • holdenmg on 02/06/2022 - 13:35
      +1

      Bamboo or waterboarding?

      Both cost more than before.

  • randomusername2017 on 02/06/2022 - 13:29
    +3

    Congratulations, you are saving $3811 on the contract

    $78,667.80 + 6k ≠ 85k ..were you expecting a small profit too?

    • TNTomer on 02/06/2022 - 13:40
      -3

      The payout figure is $88,000, and I have already paid 6k. I wouldn't call that a saving.

      • randomusername2017 on 02/06/2022 - 13:44
        +3

        (c) all other amounts outstanding under the Agreement

        $97,811?

  • dust on 02/06/2022 - 13:43
    +2

    I'll name and shame if you think what they are doing is extortionate).

    It's in the contract you signed. Even if it's extortionate, it's terms you agreed to.

  • GG57 on 02/06/2022 - 13:47

    I hope OP has also now realised that if they sell the vehicle before the finance term ends, they will be up for the same scenario.

    • randomusername2017 on 02/06/2022 - 13:49
      +4

      Used car market might be hot, doubt they would be queuing up for something with an 85k+ lien….

  • El cheepo on 02/06/2022 - 14:17

    What works out cheaper?

    Taking the extra hit now or using your cash to pay off the loan over 4 years? Or is it going to work out the same?
    (Ain’t nobody got time for that maths)

    In any case, companies don’t lend money out of the kindness off their heart, of course they will look to capitalise on any opportunity they get.

    Take the cheaper option and learn from the experience.

    • MS Paint on 02/06/2022 - 14:40
      +1

      (Ain’t nobody got time for that maths)

      this dude has time for maths.

      • avoidfullprice on 02/06/2022 - 14:51

        Doesnt take long to do $20 / 12% x 110%

  • JimmyF on 02/06/2022 - 14:40
    +2

    I spoke to the company and they claim that as a commercial loan they charge the interest upfront for the term of the loan so paying it out early would still incur interest for the entire term of the loan

    This is correct for most of these type of loans. Paying 'extra' or paying it out early isn't like you would expect on a house loan.

    Due to financial reasons I need to payout the loan early (only 3 months in) and I have the cash to do it anyway

    Why pay it out then? Just leave the cash there and let them nibble away at it over the next 40ish months.

    • avoidfullprice on 02/06/2022 - 14:50

      Maybe they want to increase borrowing power for another loan?

      • JimmyF on 02/06/2022 - 15:00

        Maybe they want to increase borrowing power for another loan?

        Maybe, but they have $85k in cash to offset a lot of the reduced borrowing power already.

        But if this is what they want to do, then they need to 'eat' the fees and do it.

  • avoidfullprice on 02/06/2022 - 14:47

    Got a copy of your contract with your personal details redacted? Not just section 24?

    • JimmyF on 02/06/2022 - 15:01

      Its a Metro Finance contact. Sure you can find one online if you want to have a look over it.

      • avoidfullprice on 02/06/2022 - 19:23

        Couldnt find it thats why i ask. Sure you can help me if you can find it

    • TNTomer on 02/06/2022 - 15:10

      Happy to send it over once I get back home.

  • JiGaXD on 02/06/2022 - 15:23
    +1

    @OP, it sounds like your broker misled you. I believe you're focusing on the wrong issue, along with the majority of the comments. I think you should be seeking recourse against the broker. Do you have any evidence of what the broker told you? You should be seeking proper legal/financial advice.

    Edit: as some earlier posters mentioned, Financial Services Ombudsman or public sources would be a good starting point.

  • havabeer on 02/06/2022 - 15:28

    I dunno why everyone thinks interest is calculated upfront for the term of the loan. I've never had a car loan like that. Although I don't use loans for cars anymore so maybe its changed.

    • GG57 on 02/06/2022 - 16:20

      It certainly was very common in some loan types; from other's comments, it appears to remain common.

    • MS Paint on 02/06/2022 - 17:05

      There's an exception to every rule

    • burningrage on 02/06/2022 - 19:06

      In every car loan I ever had and this went back near 10-12 years ago, it has always been like that.

      There are a number of loans which can act like car loan but in fact not a car loan like perhaps personal loan where you pay interest on balance, not on capitalized interest balance.

      That's why I was taught to better off redraw from Home Loan to get a car or even better, salary sacrificed it or even far better, get a car loan with 0% or 1% interest like that last one I had. Naturally, it was never repeated ever again.

    • JimmyF on 02/06/2022 - 20:32
      +2

      I dunno why everyone thinks interest is calculated upfront for the term of the loan. I've never had a car loan like that. Although I don't use loans for cars anymore so maybe its changed.

      Don't confuse car loans with personal loans ;)

      If you get the loan from the dealer, its a car loan and they calculate it all up front, so you're on the hook no matter how fast you pay it back.

  • vince088 on 02/06/2022 - 21:01

    im just curious what car did you buy?

    • Domicron on 05/06/2022 - 23:46
      +2

      A45s?

      • johnno07 on 10/06/2022 - 11:30
        +1

        This does seem like the average amount of dilligence an A-Class Merc buyer would apply to a $80k+ purchase.

  • miwahni on 02/06/2022 - 21:56
    +2

    To start with, if this is a "commercial" loan as your comments suggest, you will likely receive little assistance from AFCA as they deal with regulated loans only.

    Secondly, re-read your contract and see if it mentions it's a flat rate of interest or a reducible rate. Flat rate loans charge interest on the entire balance at the commencement of the loan, while reducible interest is calculated against the outstanding balance (used to be monthly rests but thanks to the power of computers it's done daily now) (yes I'm old enough to remember calculating home loan interest manually and applying to 17 ledgers full of home loans).

    Also your title is misleading - what are these fees they're charging you?

  • thwarted on 03/06/2022 - 13:39
    +1

    Instead of paying out the loan, why don't you put the payout amount into the highest yielding savings account you can find and automate the regular payments to them until the loan is paid off. You could then approach the lender and advise what you have done. If they are astute they would assign some value to a lump sum payout and negotiate better terms. If they are not astute, at least you are getting some value from the savings account - perhaps this could be negotiated as well.

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