Loan interest correct?

sally12_2

Hi, I was hoping someone here can help,

I have a loan with HSBC for £9210 over 144 mths (12 years) @ 12.70% variable
(I KNOW! it was the only alternative, other than defaulting on an existing loan, this one replaced it.)

I have been paying 85.20 per mth for 1 year, I have just got a yearly statement which basically says I have paid £1046.40 off, of which £871.04 is interest payment, which means I have only paid £175.36 off of the loan amount.

Having spent several days totally stunned, I have found my agreement which says total Interest will be £8.212.93!

Sorry if im being incredibly stupid, but is this right??

I thought 12.70% of £9210 is/was £1169.67

Regards

Sally

Rafter

Sally,

The 12.7% interest rate is per year - not over 12 years - which would be an interest rate of less than 2% .

It isn't as simple as multiplying the loan amount by the interest rate, as each month you are chipping away at the loan amount and reducing the amount of interest you pay each month.

Checked your numbers though and if you are really only paying £85.20 per month I don't see how you are going to pay off the whole loan in 12 years at that kind of interest rate.

In any case do you really still want to be paying this loan in 2020? In which case you need to find more each month to throw at it by cutting costs or increasing your income - I know - easier said than done!

Good luck

R.

sally12_2

Thanks Rafter,

I was prepared, sort of, that I don't understand interest rates, but I still don't know how it should add up,

Will I be paying £8212.93 in interest, as the loan agreement states, or:
Will I be paying £3179.81, as the loan agreement states 144 payments of £85.20 + one final payment of £121 which means a total payment of £12268.80 (loan was for £9210.00)

I just wish normal language could be used by these people and I have no faith of getting an understandable answer when I ring them.

I know this is a ridiculously hideous loan (12yrs) I agreed so that I wouldn't go to court/have bailiffs etc. the minute I am in a position to do something about it I will.

Thanks again.

CLAPTON

can you check your figures

because a loan of 9,210 for 12 years at 12.9% APR would cost 122 per month and not 85 per month

sally12_2

Hi Clapton,

They are as written on the agreement, (ie: correct) Ive just spent an hour on the phone to HSBC, while they tried to figure it out, and then my phone ran out of battery.

Im thinking the agreement is wrong as they didnt know what to do, i'll have to try to call them back later as Im at work.

CLAPTON

be very careful here

if you are really paying 85 per month then that's a fantastically good deal so don't be hasty in agreeing anything without thinking carefully about it.

sally12_2

Hi Clapton,

I wish it were a fantastically good deal.
According to my agreement I am paying back a loan of £9210 and interest of £ 8212, a total of £17.422

Also according to my agreement I am paying them £85.20 over 144 mths (+ 1 x £121)
So after 144mths I will still owe them £5154.13!!

I think there has to be a mistake (i hope)

CLAPTON

It rather depends exactly what your agreement says and the nature of the error.

I was trying to say that if £85 was sufficient to pay the loan off in 12 years then it was a fantastic deal and one you would want to stick with.

You don't say how you came to in this situation but if your credit history is poor then a loan at 12.7% isn't eactly a bad deal either.

Sadly your apparent understanding that 12.7 % meant over the full 12 years rather than APR (i.e. each and every year) is unfortunate.

Anyway just be careful when they respond to your queries here.

sally12_2

Mm, I think the error is in the monthly payment they agreed, I'll have to see when I speak to them again tomorrow.

It is unfortunate that I don't (didn't) understand how the interest works, (Ive never been in debt before) but I still think £3 to £3.5k sounds about right and over £8k sounds loan sharky and not respectable bank"y" but who am I to say!!!!!

Unfortunately I was self employed and built up debt as my business went down, (sole trader, so the debt has stayed with me, and I couldnt afford the £500 it costs to go bankrupt and also thought i was doing the morally right thing in trying to pay things off) and then took a loan to re-train for something else that due to the current climate is not really feasible either. Worse mistake of my life.

I have had a PAYE job now for the last year, but worrying over these debts I have no way of getting on top of is horrendous!

sally12_2

Just thought Id say, Ive managed to sort this out with HSBC (£25 of phone calls later) they have adjusted the details of the loan that were incorrect and as a result I am no worse off and have had some of the interest I paid refunded.

Thank you for your help. :beer: