Debt clear doubt

wireless

I took a home lending loan from GE in Aug 11,700 ,i paid so far each month £139. I aksed them to send me settle ment figure lost month ,they sent me including earley repayment cost £11926 ,i couldn't pay lost month and asked again to send the settlement figure, now it came 11936. I don't understand after paying for 4months why is this more than what i took. this is a total rip off.can somebody help me ,what's wrong. I took at the rate of 11.9%APR for 180 months.

climbgirl

It probably includes an early repayment penalty....what are the T&C of the loan regarding early repayments?

sanfrancisco

It sounds like the interest was front loaded...see here...

from Martin:

Rule of 78

A hidden penalty; most lenders use ‘Rule of 78’ interest calculations. This is a hideously complicated formula which artificially allocates early years’ repayments towards paying off the interest, so they hardly decrease the amount you owe.

This means try and pay off the loan in full early and there’s much more left than you think (see a Rule of 78 Technical Explanation). The earlier you repay, the bigger the problem.

New rules have stopped Rule of 78 for new loans, yet there’s no respite for existing loan holders, for whom it continues until 2007.

http://www.moneysavingexpert.com/cgi-bin/viewnews.cgi?newsid1102967078,41318,