Northern Rock loan interest unlawful?

longlivethemoore

Hi,

I recently took a northern rock loan for £10k at 9.9% becase it was the only one i could get at the time, 4 months later Nationwide have offered me the same loan at 6.7% so the same amount per month but over 7 years instead of 10 years. when i asked for a settlement figure from NR they told me they front loaded their interest and after paying off £600+ i still owe them £9980.

Just a question, i was informed that front loading interest is unlawful, does anyone know if this is true? obviously i expect to pay something but £600+seems a bit much for just 4 months.

Many thanks

Astaroth

It doesnt sound like the front loading that you are thinking of as otherwise the repayment would be more than what the original loan was for.

When you take a correct loan out the first payments virtually only just covers the interest and only a tiny amount goes to paying the balance. As the loan goes on the sum outstanding goes down so the interest goes down but as you pay flat payments it means that more of your payments go towards paying off the balance rather than the interest. This is just how maths works and is nothing "unlawful" about it.

Add to this fact that there is probably also an early redemption fee (again lawful) and the figure doesnt look that bad.

When you sign yourself up to something for 10 years you have to expect to make losses when you decide to try and get out of it after only 4 months

Cozy9k

i was looking into this too, see my thread below and it says that no penalty for early payment

Q. Are there any charges if I repay the loan early?
A. There are no early repayment charges so you are free to pay off your loan whenever you want at no extra cost.

and

Q. Can I make extra payments to my loan?
A. Yes you can make overpayments at any time. Your monthly payment will not reduce and the total amount of interest paid will remain the same unless you settle your loan in full. As overpayments reduce your outstanding balance, you may be able to pay the loan off earlier than expected as your loan term will reduce in line with any overpayments made. If you do pay off the loan early you may be entitled to a rebate of interest, which is calculated using the formulae prescribed by the Consumer Credit Act 1974.

so from the statements above, i think you can pay it off early with no penalty with the other loan and you may be able to obtain a rebate of interest although i don't know how this works as i have asked the same question really on a previous thread yesterday

hope that helps, i'd of thought if you have only had the loan for 4 months and you pay it off in full then surley they can only charge you for 4 months of interest on the loan


this was taken from northern rocks faq section

http://www.northernrock.co.uk/loans/unsecuredFAQ.asp#iFAQ2

Rafter

Run it through the calculator and all looks fine and fair.

A £10,000 loan over 10 years means that over 60% of your initial payment is interest.

If you called NR after making 4 payments the balance is £9800 and you have paid £315 in interest.

Count yourself lucky you chose NR who don't charge repayment penalties, otherwise you could owe the same amount that you borrowoed.

Agree with Astaroth there is no front loading. It would be unfair for the £5,500 interest on the 10 year load to be spread evenly over each payment, because at the start of the loan you owe £10000 and by the end almost nothing.

If this was a secured loan with payment protection up front you would probably find yourself owing about £14000 after 4 months - now that really is unlawful and hopefully yesterdays referral by the OFT to the competition commission will make it illegal soon.

R.

valut

Astaroth wrote:

>>When you take a correct loan out the first payments virtually only just covers the interest and only a tiny amount goes to paying the balance.
>>there is probably also an early redemption fee

Could you explain the difference to me. I'm considering a £5K loan for 5 years from Northern Rock - repayments just under £100/month, NO early redemption fee. That's how it's advertised.

My understanding of this is that if I manage to pay back the outstanding amount after a month, £4900, there's nothing more to pay. Am I correct about this or have I misunderstood what is meant by 'NO early redemption fee'?

Rafter

Run it through the calculator and all looks fine and fair.

A £10,000 loan over 10 years means that over 60% of your initial payment is interest.

If you called NR after making 4 payments the balance is £9800 and you have paid £315 in interest.

Count yourself lucky you chose NR who don't charge repayment penalties, otherwise you could owe the same amount that you borrowoed.

Agree with Astaroth there is no front loading. It would be unfair for the £5,500 interest on the 10 year load to be spread evenly over each payment, because at the start of the loan you owe £10000 and by the end almost nothing.

If this was a secured loan with payment protection up front you would probably find yourself owing about £14000 after 4 months - now that really is unlawful and hopefully yesterdays referral by the OFT to the competition commission will make it illegal soon.

R.