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  • FIRST POST
    • dsa1980
    • By dsa1980 20th Apr 10, 6:39 PM
    • 21Posts
    • 2Thanks
    dsa1980
    Front loading interest on personal loan
    • #1
    • 20th Apr 10, 6:39 PM
    Front loading interest on personal loan 20th Apr 10 at 6:39 PM
    Can someone give me some advice?

    I took out a loan in January to refinance car finance with an HP company so that I would be able to sell my car more easily at some point this year. Not very Money Saving but as it is my 30th Birthday this year I want to treat myself to an old Lotus Elise as I've wanted one since I was a child!

    On calling my bank to see if I could increase my loan by £2000 so I can afford the Lotus, I found out I would have to refinance the entire loan, and given that I had only recently taken out the loan, my interest rate would rise from 8.4% to 10.5% ish.

    I then decided the best option would be to get a new loan elsewhere, however I discovered that if I was to repay the loan, as the interest is front loaded, despite paying £400 in repayments, I have only effectively reduced the balance by approx £25. Is this right?
    Shouldn't the interest be reduced if I haven't had the loan for the 48months I signed up for?

    Any advice on the best options for me would be greatly appreciated!

    Thank you
Page 1
  • Fonz
    • #2
    • 20th Apr 10, 7:02 PM
    • #2
    • 20th Apr 10, 7:02 PM
    This is pretty normal.
  • no more cards for me
    • #3
    • 20th Apr 10, 7:07 PM
    • #3
    • 20th Apr 10, 7:07 PM
    Sorry, but its how a loan works. Time value of money, then lender wants their return hence the interest (their earnings) is front ended. Unless you went for a variable rate Balanced payment plan then your can't avoid this fact. You haven't started eating into the capital yet so only a small reduction in actual balance outstanding.

    Advice, you can't afford to buy the lotus this way . Perhaps you should use your savings instead of additional borrowing.........

    • dsa1980
    • By dsa1980 21st Apr 10, 8:23 PM
    • 21 Posts
    • 2 Thanks
    dsa1980
    • #4
    • 21st Apr 10, 8:23 PM
    Thanks
    • #4
    • 21st Apr 10, 8:23 PM
    Thank you both

    I pretty much knew that there was nothing I could do, but I hoped someone might have a bright idea!
  • PC Gabriel Kent
    • #5
    • 21st Apr 10, 9:17 PM
    • #5
    • 21st Apr 10, 9:17 PM
    Lotus, Lots Of Trouble Usually Serious.
    • CLAPTON
    • By CLAPTON 21st Apr 10, 10:20 PM
    • 39,103 Posts
    • 27,767 Thanks
    CLAPTON
    • #6
    • 21st Apr 10, 10:20 PM
    • #6
    • 21st Apr 10, 10:20 PM
    how much was the loan for?
    what waas is the APR
    how many months was the loan for
    what were the monthly repayments
    were there any payment free months
    how many payments have you made
    what does the credit agreement say about early settlement
    what was the settlement figure
    was it in writing
    is it a personal loan or an HP agreement
    • CLAPTON
    • By CLAPTON 21st Apr 10, 10:22 PM
    • 39,103 Posts
    • 27,767 Thanks
    CLAPTON
    • #7
    • 21st Apr 10, 10:22 PM
    • #7
    • 21st Apr 10, 10:22 PM
    Sorry, but its how a loan works. Time value of money, then lender wants their return hence the interest (their earnings) is front ended. Unless you went for a variable rate Balanced payment plan then your can't avoid this fact. You haven't started eating into the capital yet so only a small reduction in actual balance outstanding.

    Advice, you can't afford to buy the lotus this way . Perhaps you should use your savings instead of additional borrowing.........

    Originally posted by no more cards for me

    this is completely wrong
    there are clear rules on how early settlement is calculated and they only allow a couple of months interest as an early settlement penalty.
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