Front Loaded Intrest Loans??????

team10sherrif

Please help, I am looking to take a loan of £15k to pay off credit cards and an old loan on a high % . When I approached my bank for a loan the offered 12% over 7 years. They also claimed that as I was looking to pay the loans off proir to the 7 years (due to savings plans maturing) that this works out cheaper than other loans at 5.5% that i found on the internet. They claim that this is due to the internet loans having "front loaded intrest", where as their intrest is spread throughout the loan.

Does anybody know if this is true or is it a case of my high street bank taking a loan of me.

bert&ernie

There are two ways to calculate the early settlement figure for a fixed term loan - rule of 78 and actuarial. Until recently, most lenders used the rule of 78 method. Without going into details is generally worse for the borrower as is does indeed front load the interest.

Most loans taken out since May last year are covered by a change in the law that forces lenders to use an actuarial approach to the settlement calculation and limits the amount of penalty interest that they can charge to a maximum of two months (in most cases).

I think your bank is telling you fibs.

iceicebaby

Hiya

Bert&ernie is right. I work in a major finanacial institution and the way of front loading interest on loans (or any other credit agreement) using the rule of 78 has changed for all agreements taken out after May. The interest is now worked out on a daily accrued rate. However, if you do decide the settle a loan early, the lener CAN charge a further 28 days settlement interest.

I think your bank are "pulling your plonker " too !

regularsaver1

only 28 days iceicebaby? - how come some charges 2 months worth og interest to settle early?

team10sherrif

Thanks guys for your help on this - it is appreciated. I have been with this bank for ages and go to them for the mojority of my products. I think it is time that I started to look around.