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Front loading interest on personal loan
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# 1
dsa1980
Old 20-04-2010, 6:39 PM
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Join Date: Apr 2010
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Unhappy Front loading interest on personal loan

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
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# 2
Fonz
Old 20-04-2010, 7:02 PM
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This is pretty normal.
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# 3
no more cards for me
Old 20-04-2010, 7:07 PM
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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.........

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# 4
dsa1980
Old 21-04-2010, 8:23 PM
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Thank you both

I pretty much knew that there was nothing I could do, but I hoped someone might have a bright idea!
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# 5
PC Gabriel Kent
Old 21-04-2010, 9:17 PM
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Lotus, Lots Of Trouble Usually Serious.
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# 6
CLAPTON
Old 21-04-2010, 10:20 PM
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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
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# 7
CLAPTON
Old 21-04-2010, 10:22 PM
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Quote:
Originally Posted by no more cards for me View Post
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.........


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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