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Re: Unsecured Loan - Rule 78 being used I think?
I'mcomingbackasaman
Posts: 1,204 Forumite
Not sure if I'm in the right section. .
I took out an unsecured loan in December 2006 for £7000. After reading Martins blog on loans I think I'm being treated under Rule 78 is this legal? Thought the law had been changed in June 2005?
It turns out I'm paying off interest of around £3000 before I even touch the actual loan. It's due to finish in December 2012.
Trouble is I'm finding it a struggle with my wage cut (thank you Gordon Brown's flunkies) so I'm trying to get a cheaper rate elsewhere.
Any help much appreciated
Rule of 78
If your loan was taken out three or more years ago, there could be a further hidden penalty, due to the old-style ‘Rule of 78' interest calculations.
These were abolished for new loans from 1 June 2005, yet the British Bankers Association has confirmed that anyone with a loan from before then needs to check with their lender to see if Rule of 78 applies. This hideously complicated formula artificially allocates early years' repayments towards the interest, hardly decreasing the amount you owe.
This means attempt to repay in full early and there'll be much more left than you think. The earlier you repay, the bigger the problem.
I took out an unsecured loan in December 2006 for £7000. After reading Martins blog on loans I think I'm being treated under Rule 78 is this legal? Thought the law had been changed in June 2005?
It turns out I'm paying off interest of around £3000 before I even touch the actual loan. It's due to finish in December 2012.
Trouble is I'm finding it a struggle with my wage cut (thank you Gordon Brown's flunkies) so I'm trying to get a cheaper rate elsewhere.
Any help much appreciated
Rule of 78
If your loan was taken out three or more years ago, there could be a further hidden penalty, due to the old-style ‘Rule of 78' interest calculations.
These were abolished for new loans from 1 June 2005, yet the British Bankers Association has confirmed that anyone with a loan from before then needs to check with their lender to see if Rule of 78 applies. This hideously complicated formula artificially allocates early years' repayments towards the interest, hardly decreasing the amount you owe.
This means attempt to repay in full early and there'll be much more left than you think. The earlier you repay, the bigger the problem.
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