Simple interest Vs Effective interest??

Bucephalas69

I have had a loan agreed by M&S as per MSE recommendations.
I assume because of my increasing debt level, I have been given a very poor rate but I'm a little confused over it's terms.

I am in the process of down grading house to sort debts and I was told that if I was to end the loan early I would pay a months interest.

My confusion comes in the wording of the loan paperwork as follows;

"Simple interest rate is 11.3%
Effective interest rate is 11.9%
At the beginning of the loan agreement we work out the interest you will pay over the whole period of your loan using the annual simple interest rate shwon above and add this to the loan balance.
We calculate your interest charge by applying interest at the simple rate to the balance of your loan account, as reduced by your scheduled payments."

Now I'm sure that it's me being the "simple" one here, but if I did pay off this loan in 6 months, would I have to pay all the interest they have already added in?

CLAPTON

no, you will only pay the monthly interest as you go and an extra months interest when you settle the loan

Apples2

They clarify at the beginning how much this loan is going to cost you overall before you commit to anything (ie (random figures) £7k loan, 6.9% over 3yrs will cost you £7,650)

If all they told you was the first months interest you may think you were getting your £7k loan for £80.

Bucephalas69

Thanks for the replies.:T