Simple Interest Personal Loan

ozshell

Hi, I have a new personal loan with HSBC and I have tried endless times to have them explain to me how the interest is calculated on my loan because it just doesn't add up. The only reply I seem to keep on receiving is "simple interest has been added to your loan" even when I ask them to tell me the formula, they don't. I'm starting to think even they don't understand how it's calculated.

The reason I'm interest is because the interest has been added on to my loan already and I'm told that if I pay extra I will receive a refund of interest saved at the end of the 4yr term. Because I'm a bit of an excel geek, and don't have much faith in the banks, I want to set up a spreadsheet so I can calculate how much interest I'll be due back at the end as a result of my early repayments. However after doing research online for formulae I just can't find one that gives me the same answer as my HSBC loan...

Can anyone please help me?? The details are:

Initial Loan £15,000
Simple Interest Rate 6.2%
Term of 48 months
Total starting balance of loan £16,921.87

Thanks in advance!!

DevCoder

Interest = Principal * Rate * Term

Interest = 15000 * 0.062 * 4 = £3,720

You need to post a few more details such as if there is simple interest only or if there are other terms (i.e. front loaded interest, or interest repayments on capital drawdown on regular period , 6 months for example)

If its a £15K loan at 6.2% int for 4 years on simple interest then the above is the figure.

jonesMUFCforever

Look closely at the figures on your CCA!
I think you will find the amount lent is £15000 and the total repayment if the loan goes full term will be £16921.87

IMO the interest has not been front loaded.
You pay interest on £15000 for first month and as the loan gets repaid you will pay less and less in interest.

Should you repay early then you will not get a refund but you will save by not paying the full amount of interest as that figure on your CCA.

Hope I have made myself clear.

Macca83_2

So it looks like they've bunged on the four years interest at the very start? I thought most loans calculated daily and added monthly? I suppose you could divide the total interest payable by 48. So 1921.87 / 48 = (sorry i don't have calculator) and that would give you a very rough idea of the monthly interest. Then times that by the number of months left on your loan plus 2 months interest for early settlement.
I always thought loan interest was calculated daily and applied monthly? So that wouldn't really work..

redpete

ozshell wrote: »

Initial Loan £15,000
Simple Interest Rate 6.2%
Term of 48 months
Total starting balance of loan £16,921.87

So you pay about £354 a month? That works out if they apply interest as per a normal loan, i.e at the end of the month they add on 6.2%/12 of the balance at the start of the month and deduct the £354 payment. i.e they don't add all the interest on right at the beginning of the loan.

What do the Ts&Cs say about early payments? Is there a fee payable, maybe 2 month's interest on the amount overpaid?

jonesMUFCforever

I think overpayments will normally be free of charge - it is an early settlement that will incur a fee.

CLAPTON

krisdorey wrote: »

Interest = Principal * Rate * Term

Interest = 15000 * 0.062 * 4 = £3,720

You need to post a few more details such as if there is simple interest only or if there are other terms (i.e. front loaded interest, or interest repayments on capital drawdown on regular period , 6 months for example)

If its a £15K loan at 6.2% int for 4 years on simple interest then the above is the figure.

this is simply wrong

the OP hasn't borrowed 15,000 for 4 years as he is repaying capital every month and so the loan is reducing.


no unsecured loans are front loaded as this would be illegal.

CLAPTON

Macca83 wrote: »

So it looks like they've bunged on the four years interest at the very start? I thought most loans calculated daily and added monthly? I suppose you could divide the total interest payable by 48. So 1921.87 / 48 = (sorry i don't have calculator) and that would give you a very rough idea of the monthly interest. Then times that by the number of months left on your loan plus 2 months interest for early settlement.
I always thought loan interest was calculated daily and applied monthly? So that wouldn't really work..

no you can't take the total interest and divide by 48 as indeed the interest is accrued daily and added monthly.

Macca83_2

CLAPTON wrote: »

no you can't take the total interest and divide by 48 as indeed the interest is accrued daily and added monthly.

i thought so. The total starting figure threw me. Really the total starving figure is 15k.

CLAPTON

Macca83 wrote: »

i thought so. The total starting figure threw me. Really the total starving figure is 15k.

It is a requirement of the government's regulators that the total cost must be shown, so they do i.e. the sum of the amount borrowed plus the interest if the loan runs to term

The regulators like to use terms like 'interest rebate' if you pay early.

Personally I think it is very confusing to look at it that way but that's how it is.

ozshell

Hi all.

My loan agreement states that the amount borrowed is £15,000 and the simple interest rate is 6.2%. The total amount repayable is £16,921.87 (therefore taking one from the other I assume the total interest payable for the term of the loan is £1,921.87).

When I look at my loan balance online it shows £16,921.87, not £15,000, so they aren't using the standard form of borrowing where each month you see your balance - repayment + interest charged for the month, like they do with mortgages.

Therefore they have 'front loaded' the interest repayable (over the 4yr term) now, not adding it on monthly.

So when I use the simple interest rate of Interest = Principal * Rate * Term = £3,720, this isn't working because I seem to only be paying total interest of 1,921.87.