Loans and paying the interest first

yeti08

Hey all.

I am not sure I have the right term, but I thought interest front loading was no longer aloud?

I say this because I took out a £5000 loan about 6 months ago. I call up to enquire how much my loan is currently, and they say it is £5000, but they will refund me x amount in interest.

So, basically I am paying them the interest for the full interest of the loan first, then paying off the loan. So, does this mean that (currently), the amount of money I pay in interest, is not reducing every month?

I have calculated it as £50 per month at the start of the loan, down to about £42 pounds a month currently.

Cheers and thanks very much.

~Brock~

It all depends on whether the interest rate is fixed from the start. If it is then the loan agreement must show the total amount payable. This figure therefore becomes the balance on day 1 of the loan. If you pay it off early then an interest rebate is applied in line with current regulations. Nothing illegal about that - its the way it has to be.

If, however, the interest rate is variable then the total amount payable cannot be stated for definiate because it may be subject to rate changes in the future. In such cases, interest is added on a monthly basis in a similar way to credit cards. The trouble with this method is that if you miss a payment the interest is added based on a higher balance and it all ends up compounding into a much bigger debt.

I know which type of loan I would choose and it aint the second one !!!:cool:

CLAPTON

yeti08 wrote: »

Hey all.

I am not sure I have the right term, but I thought interest front loading was no longer aloud?

I say this because I took out a £5000 loan about 6 months ago. I call up to enquire how much my loan is currently, and they say it is £5000, but they will refund me x amount in interest.

So, basically I am paying them the interest for the full interest of the loan first, then paying off the loan. So, does this mean that (currently), the amount of money I pay in interest, is not reducing every month?

I have calculated it as £50 per month at the start of the loan, down to about £42 pounds a month currently.

Cheers and thanks very much.

This makes no sense ... what do you mean you owe 5000 but they will refund interest... what does that mean?

what were the details of the loan
amount, apr, period, monthly payments
did you take out PPI, have a payment holiday, miss any payments



if you need to know then write and ask for a settlement figure