Interest applied at start of loan?? Is that correct?

raab

Hi all

I am looking for some info on loans please. I took out a loan for 10k over 5 years in Jan 2010 with Tesco bank. I have been making overpayments now for the last few months with the understanding that if I get the amount low enough and let the last payment clear by DD then I avoid the early repayment charges.

I know the cost of the loan over its lifetime. What I dont understand looking at my statement is how come this amount was added to the loan at the very beginning. Unless I am missing something, me paying off the loan early then does nothing except pay the full amount sooner rather than later, they are still getting their full +-£2000 charge paid to them even though I am repaying 2 years early.

Is that right or am I missing something? I would have thought that you loan 10k, they charge you interest which takes you to a bit over 10k, you make a repayment which brings down the total, they charge you interest on that etc. But my statement (and thus current balance) indicate that the full 5 years of interest/charge were applied at the beginning.

Shouldnt they be looking at when I clear the owed amount and not charging me the interest for the next 2 years?

Thanks for any advice
Raab

CLAPTON

your friendly regulator under the CCA regulations requires that lenders show the total cost of the loan i.e. the sum of the loan and the interest assuming the loan runs for the full term


however, the regulation require a 'rebate' if you repay early

in practice this means that you pay a maximum of the loan outstanding plus a maximum of less than 2 months' interest

thatsean

Depends on the loan product and the terms, some are front loaded interest, some offer no discount for early settlement. Have you got the loan offer paperwork? You might have to check that.

t508

If the loan is a fixed rate and term then it will be calculated upfront and any interest rebate calculated at the point of settlement. If you pay in a lump sum then you can ask for a partial settlement at that point and they can either recalculate your payment or term, you still get the same rebate on early settlement.

cos_2

I repaid my Tesco loan two years early. When I called, they added two months' interest as a charge, and recalculated interest due at that point. The figure worked out as saving me two monthly payments overall, so I was happy to settle up immediately.

CLAPTON

thatsean wrote: »

Depends on the loan product and the terms, some are front loaded interest, some offer no discount for early settlement. Have you got the loan offer paperwork? You might have to check that.

in general, for unsecured loans made after 2005, this is incorrect; there are no loans that don't give a interest rebate for early settlement