Preloaded interest on a loan

cindylou41

Hi, I have a DMP in place with the help of the CCCS and have been doing this for the last 15 months. I have been pleased with my progress so far but have had a setback recently with my Santander loan. I assumed I had paid a lot more than I actually had when I asked for an up to date balance. I asked why and they said it was because the interest was pre-loaded when I took the loan out. Can that be right? Is that allowed? :(It's going to take me a lot longer to pay off my debts than the CCCS envisaged if that is the case!! Really gutted.

Gordon_Hose

My 2007 Natwest loan was pre-loaded with interest. When I extended the loan last September to incorporate my overdraft the interest wasn't pre-loaded.

qpop

All loans are pre-loaded with interest. That's why there are 2 different rates of APR quoted, APR and flat. So, if you borrow £6k over 3 yrs at 10%APR, your bank / credit file will actually report a debt of £6,927 (check out: http://yourmoney.moneyadviceservice.org.uk/tools/loan_calculator.html) So your monthly repayment is just 1/36 of this (£193). As you can see, the first 5 months or so are effectively just paying off the interest. The thing is, the difference is trivial. The reality is the debt is the same either way, and due to the pre-loading, if you were to pay your loan off early, the CCA dictates that the loan interest has to be recalculated and an appropriate rebate given at the originally stated APR (or, basically, they knock the "unpaid interest" off your redemption figure).

Hope that helps