interest in loan

redsquirrel2

I took a 5k loan out in march 08 and it appears now i have the yearly statement that they have done the thing of adding all the interest on first and you pay that off first.

was this not made illegal or did i just miss the date. it means that after a year i still owe what i borrowed maybe its just tufff titty but thought i would ask

CLAPTON

No, they don't add all the interest at the beginning, so if you pay the loan off early you will not pay all the interest.

However, it depends upon what sort of statement you are looking at; if it shows the total owed then it probably would show all the interest and all the capital.

redsquirrel2

the start if the letter says

"the interest charges applicable to your original loan/loan principal are added at the beginning of the loan term. the interestcharge is calculated by applying the above interest rate per annum to your loan amount/loan principal on the basis that you will repay the loan principal in full over the chosen term"

then below it is a table that is as follows

balance

05/03/08 opening balance £0.00 0
05/03/08 loan principal £5000.00 £5000
05/03/08 interst on loan £1437.40 £6437.40
04/04/08 payment £107.29 £6330.11

then a year of payments until

04/03/09 payment £107.29 £5192.92

CLOSING BALANCE £5149.92


sorry its not clear the forum takes the spaces out but you can see my balnce going down and from where the interest has been fully added

redsquirrel2

there is also a FAQ on the back and it says

WHY IS MY CLOSING BALANCE HIGHER THAN THE LOAN PRINCIPAL?
as the loan interst rate is fixed for the term of this loan, the amount of interst you pay is fixed. this is added to the start of the loan and is repaid over the agreed term.

CLAPTON

who is the loan with?
is it an ordinary personal loan?

does it give examples for early repayment i.e. after 1/4, 1/2 and 3/4 of the loan period.

~Brock~

You appear to have got a fixed rate loan.

Because the rate and term is fixed, the amount of interest is a known quantity and is therefore shown from the outset.

If you did settle the loan early then you would be entitled to a rebate, using a statutory calculation, of the interest element of the unexpired term.

There is nothing illegal about this - on the contrary - this is how it should be done for fixed rate agreements.

redsquirrel2

it was with allience and leister and was just a normal personal loan

its different from my northern rock one as that applies interest to each month so if you pay it back early you dont pay any interest on the remaining balance.

i just hadnt heard of one where you pay al the interest first before you hit the borrowed amount