Lloyds TSB Loan, shock at monthly interest charged

blueant27

Last January i look out a personal loan for £4600 for a car purchase, been paying £133.26 a month, my bank statements have been showing this on the 23rd of each month so im thinking everything is fine.

This week i get a letter through the door, its my yearly loan statement, after every monthly payment i also see they are adding a monthly interest of £60-£70 pounds (its not coming out my personal account but being added to the loan).

So after 1 year my loan has only reduced to £3831.05.

Is this right ? I was under the impression a loan was fixed monthly payment till the end ?

chesky369

What rate of interest were you told you would be charged?

Kira000

It sounds like the same format as my LTSB loan - unless something is very wrong, i think its just how you are reading the statement!

The amount your borrowed was agreed, the monthly payment is fixed. So your statement shows the monthly amount fixed which comes from your account- £133.26.

This amount goes to pay off the original amount of cash you borrowed, and each month, you pay interest on the amount, so £60-£70 is being added back on to the balance. You are still paying the same £133.26, the statement is just laying out, how much is going on interest, and how much to pay off the "capital" of the loan. You should find, that as time goes on, the amount of interest goes down, as you pay off the loan capital. It is all worked out in advance, so your payments stay the same, but the proportion of interest to loan changes.

blueant27

so when my monthly payments end, will i have a lump sum of interest to pay ?

[Deleted User]

No. It'll all be paid off. Whereas your first month payment in £133 covers mostly interst, your last one will be all capital.

If they didn't do it this way, and you paid the same proportion of the capital off each month, then your first payments would be huge, decreasing to small ones at the end. Which make it more difficult for people to budget.

jonnyd281

blueant27 wrote: »

so when my monthly payments end, will i have a lump sum of interest to pay ?

No, as you pay off the money you borrowed the amount of interest you are charged goes down, so more of you £133 goes towards paying off the capital.

YorkshireBoy

OP,

Plug your loan details into this calculator...

http://www.whatsthecost.com/loan.aspx

...and then click the "details" button to see the principal and interest elements of your loan over time.

iolanthe07

What a shame the way the interest/principal ratios on loans aren't explained when they are taken out - it would save a lot of worry and misunderstanding. OP: As others have said, as the loan progresses you will notice the interest portion of the monthly payment decreasing with a corresponding increase in principal repayment. It all works out in the end and ensures your monthly payment remains constant.