Loan Interest

hailsham

I took a loan from my bank last year, repayable over three years.

I have just received the annual statement showing payments made and interest charged.

Interest is added on the last working day of each month and my payment is made on the second day of the month, or the first working day after.

The interest figures seemed very strange as they went up and down, while I would expect them to go down all the time as the loan reduced. So out came my calculator. The first interest charged was correct for the number of days from the start of the loan to the charging date, but all subsequent interest figures were wrong.

After a bit more number crunching I realised that they are charging interest on the interest for the few days from charging date to payment date.


I know that loan sharks do this sort of thing - but a bank!

My questions: Is this normal practice and is it legal?

opinions4u

Normal, legal and what you signed up for.

CLAPTON

if you had a savings account would you expect to receive compound interest on your money or would you reject it on ethical grounds?

hailsham

opinions4u wrote: »

Normal, legal and what you signed up for.

Maybe, but there is nothing in the agreement to say that they would do this and it wasn't explained to me. If it had been, I would have chosen a different date for my monthly payments. I can find nothing in the Consumer Credit Act 1974 about this.

Do they do the same with mortgages?

Interest left in a savings account becomes added capital; it then becomes eligible for interest. But that's my choice. I have no choice when the repayments are made on the loan account and have been told the date cannot be changed.