rabbitstew Posted January 5, 2015 Share Posted January 5, 2015 There seems to be no end of different types of GAP insurance! The one BMW offered me when I bought my 6 month old 123d was that if I write it off, then I will get the difference between what the insurance pay me for the car and what a brand new one (not a 6 month old one) would cost. The salesman was quite keen to stress that. The way he worded it I could crash my 6 month old (but new to me) £25k car and drive away in a new one (£33k) for this bargain price of whatever it was a year. I didnt see why I should gamble on crashing in order to jump in a new car as my insurance premium would rocket up anyway and I was more than happy with the 6 month old car id just bought. The problem is the first year you are only paying the interest. So effectively you could be paying your loan 4 years early but it wont matter as you haven't really reduced the amount you owe. Ive heard that before, but I have never understood that. Surely they wont know how much total interest you will owe until you have finally paid it off. I (maybe too sensibly) thought it was worked out monthly based upon what you have left to pay. I know on my mortgage it used to be £500 a month and £300 of that was interest, and £200 went off the capital. At the end of each year I had a statement showing that id cleared £x amount of the capital and £x was paid interest. I dont ever recall a statement showing that for year X id paid no interest and all it went off capital. Quote Link to comment Share on other sites More sharing options...
hensh65 Posted January 5, 2015 Share Posted January 5, 2015 There seems to be no end of different types of GAP insurance! The one BMW offered me when I bought my 6 month old 123d was that if I write it off, then I will get the difference between what the insurance pay me for the car and what a brand new one (not a 6 month old one) would cost. The salesman was quite keen to stress that. The way he worded it I could crash my 6 month old (but new to me) £25k car and drive away in a new one (£33k) for this bargain price of whatever it was a year. I didnt see why I should gamble on crashing in order to jump in a new car as my insurance premium would rocket up anyway and I was more than happy with the 6 month old car id just bought. The problem is the first year you are only paying the interest. So effectively you could be paying your loan 4 years early but it wont matter as you haven't really reduced the amount you owe. Ive heard that before, but I have never understood that. Surely they wont know how much total interest you will owe until you have finally paid it off. I (maybe too sensibly) thought it was worked out monthly based upon what you have left to pay. I know on my mortgage it used to be £500 a month and £300 of that was interest, and £200 went off the capital. At the end of each year I had a statement showing that id cleared £x amount of the capital and £x was paid interest. I dont ever recall a statement showing that for year X id paid no interest and all it went off capital. Sensible in the finance companies favour Again from just looking at my own agreements I have taken, the interest is calculated at the start of the agreement. So the car you're buying is £14K but you are actually borrowing more like £16K. So from day one you owe £2K more than the car is worth. Quote Link to comment Share on other sites More sharing options...
rabbitstew Posted January 5, 2015 Share Posted January 5, 2015 Again from just looking at my own agreements I have taken, the interest is calculated at the start of the agreement. So the car you're buying is £14K but you are actually borrowing more like £16K. So from day one you owe £2K more than the car is worth. That would be over the full term, but what if you pay the loan off after 1 month, surely the interest you actually owed would be re-calculated on the basis of you only borrowed the cash for 1 month rather than the full term? Id expect some sort of "early repayment" penalty, but maybe not you forgo the interest paid for the full term. 1 Quote Link to comment Share on other sites More sharing options...
hensh65 Posted January 5, 2015 Share Posted January 5, 2015 Again from just looking at my own agreements I have taken, the interest is calculated at the start of the agreement. So the car you're buying is £14K but you are actually borrowing more like £16K. So from day one you owe £2K more than the car is worth. That would be over the full term, but what if you pay the loan off after 1 month, surely the interest you actually owed would be re-calculated on the basis of you only borrowed the cash for 1 month rather than the full term? Id expect some sort of "early repayment" penalty, but maybe not you forgo the interest paid for the full term. Not sure is the honest answer, I would imagine it would be a much more favourable sum after 1 month than after 1 year. I normally settle around 2 the 2 year mark, I have been £500 in negative equity with one and £500 in the green with the zed. 1 Quote Link to comment Share on other sites More sharing options...
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