Confused about total outstanding

sween

Hello

I understand there are early repayment charges on loans (2 months interest on mine) but I'm not sure about other matters.

For example;

If I take a £10,000 loan over 5 years with a total amount to pay of £13,000 (I'm just using round fig to make it easy) I understand that interest will be a bigger proportion of the payments at the start but if I come to pay off early does the loan immediately start at £13,000 and then reduce or does it start at £10,000 but just reduce more slowly at the beginning?

For example if I were to repay at 1 year would there be nearly £13000 to pay or would there be a little under £10k? I think (and hope!) that it would be the latter as otherwise it would seem I'm being charged for interest in advance but I may be wrong. There seem to be all kinds of repayment illustrations but I can't find one that shows this sort of thing.

Many thanks.

robbedofmymoney

sween wrote: »

Hello

I understand there are early repayment charges on loans (2 months interest on mine) but I'm not sure about other matters.

For example;

If I take a £10,000 loan over 5 years with a total amount to pay of £13,000 (I'm just using round fig to make it easy) I understand that interest will be a bigger proportion of the payments at the start but if I come to pay off early does the loan immediately start at £13,000 and then reduce or does it start at £10,000 but just reduce more slowly at the beginning?

For example if I were to repay at 1 year would there be nearly £13000 to pay or would there be a little under £10k? I think (and hope!) that it would be the latter as otherwise it would seem I'm being charged for interest in advance but I may be wrong. There seem to be all kinds of repayment illustrations but I can't find one that shows this sort of thing.

Many thanks.

hi,

most loans charge the interest on a monthly basis, for example if your apr was 12%, they would do the following

each month they would add one months interest to the loan in this case 1%, (12%/12 months) then they would deduct your monthly payment to leave a new outstanding balance, then the following month they will do the same and so on,

i hope this helps explain how they usually work,

the totla they show on th eloan is to illustrate how much you would pay if the loan went full term.

CLAPTON

robbedofmy money is correct
so unless you have a payment break anywhere you will start at 10,000 and each subsequent month will owe a little less so forming the balance outstanding.
Any settlement figure will be based on this balance outstanding figure plus a couple of months interest

sween

Many thanks. That clears things up. It's also the answer i was hoping for!