Loan repayment

mickluz

Can someone give me some advice please.
In 2006 I took out a £25,000 loan, repayable over 120 months, with a total repayment at 7.7% per year of £36,028. This was a monthly set repayment of £300.24 per month.
I did not start receiving annual statements from my lender until 2010 and this showed my monthly payments (£300.24) were being deducted, but then interest was being added.
So, in effect I was not paying £300 off my loan, but only, for example say £200, as 100 was being added in interest (reducing month by month as the amount came down)
When I queried this I was fobbed off and made to feel quite insignificant by the lender. (Barclays)
In January last year, this format changed and since then I have only been charged the £300.24 a month.
My question is, why was I being charged monthly when my agreement clearly states 300.24 per month for 120 months (This also multiplies out correctly to the £36,028 total repayment)
It`s a straightforward transaction in my mind, pay "x" for "y" amount of months to pay a total repayment of "z" !!!!!!!
Help !!!!!!!!!

dealer_wins

Figures look perfect. In the early years a high % of your monthly payment will go towards interest. In the later years this reverses and more and more of the monthly amount will be capital repayment.

mickluz

Thanks for the reply Big Dealer !

So in the long term, I still pay for 120 months and only pay back the original quoted figure of 36,028 ?
For example:
In my organised mind, if I borrow from you £100 with £10 set interest and I pay £22 in January, £22 in February and so on, I will have paid you back by May.
Not £22 in January on the £110, interest added on the £88 remaining, then £22 in February on the inflated £88 and so on.
The goalpost keeps moving !!!!!!!
Can you see what I`m saying ??

CLAPTON

its quite simple

when you started you owed 25,000
you pay the interest on the amount owing that month
so each month your 300 pays the monthly interest and whatever is left reduces the capital balance

so in the 1st month the interest you owed was (using schoolboy maths )
25,000 x 7.7% /12 = 160 approx
you paid 300 approx so your debt reduced by £140
the might show this as 25,000 + 160 -300 = 24,840 (all rounded to make it easier)

so in the 2nd month you owed 24,840
so interest would be for that one month
24,840 x 7.7%/12 = 159 rounded
so you debt is now
24,840 + 159 -300 = 24,699

and so on

each month you pay a little off the debt and each month the interest charged reduces


that's how it works

mickluz

Thankyou Clapton,

That make sense, taking off payment & adding interest on the £25,000 as you go.
I would have thought it more straitforward, for statement purposes, to start at £36,028 and show monthly payments of £300.24 deducted !!!

CLAPTON

mickluz wrote: »

Thankyou Clapton,

That make sense, taking off payment & adding interest on the £25,000 as you go.
I would have thought it more straitforward, for statement purposes, to start at £36,028 and show monthly payments of £300.24 deducted !!!

that's an option but why would you need to do that?

if you pay 300.24 per month for 120 months making 36026 in total surely it's obvious that the 36,026 reduces by 300.24 per month

however if you wanted to, say clear the debt early then you would want to know how much capital you still owe

but each to their own

chanz4

I have a creation loan, they start with the high figure and the full amount comes off. it does however make it look like more debtq