Is my secured loan front loaded?

twinkler

Hi

Can someone help explain something to me please as Ive got myself really confused...

I took out a secured loan for £40k with GE Money almost 5 years ago.
Ive been making my regular payments of £300 per month and have today recieved a statement showing the outstanding amount as £38,500?

Does this mean the loan is front loaded?
I was under the impression that secured loans could no longer front load their interest, am i wrong? I thought that was illegal nowadays?

I assumed the balance would have been far lower as Ive been paying for 5 years so i'm really confused.

Can someone explain whether this loan is front loaded or not & if so, what does that mean, can they do this?

Thanks for any advice

[Deleted User]

What it means is that in the early stages of a loan, the vast majority of your payments are going towards the interest as you have such a large debt. In the latter stages, it is reversed, as the capital reduces. But your monthly payments always stay the same, so as to make it affordable.

Without knowing rate or term, it's impossible to give any further guidance.

tonkinator

What's the interest rate (APR)?

Is that a settlement figure, or the current balance?

Once you've provided the interest rate, people will be able to give you a better answer.

twinkler

Thanks for helping...heres some more info...

The original term was 300 months (25yrs)

Amount borrowed £39,795

Outstanding balance £37,932
Cost to repay now £38,293

Interest rate 0.624% per month (7.49% a year)

[Deleted User]

From your figures then, in the first month, you owed £39,795. The interest on this for one month was £248.32, so you only paid £51.68 off the capital.

Then in the second month, you owed £39,743.32. Interest on this was £247.99, so you paid £52.01 off the capital.

And so on. After only 5 years, most of the capital is still remaining, but you pay off more each month.

So there's not front loading. That's just good old fashioned interest. The £38k is what is would cost you to pay off today. Run it to the full term and you'll pay thousands more in interest.

Tixy

If the interest was front loaded your balance would be showing at around £72k.
Which would be the total amount due on the agreement (capital & interest), less the payments you have made.
In total you will be paying around £90k for the loan (£300 x 300 months), and you've paid around £18k so far (5 years x 12 x £300).

Depending on your circumstances it might be worth considering seeing if you can refinance the loan at either a cheaper APR or a reduced term, to see if you can reduce the total amount you will pay overall.

CLAPTON

7.49 % isn't a bad rate but a lower one would be better.

and no, the interest was not front loaded.

and the reason for the current balance is you have borrowed over 300 months so capital repayment has been low.

basically you need to pay more each month if you want to pay it off earlier

twinkler

Thank you all so much for taking the time to explain this to me.
We were thinking about refinancing this loan, so might look at doing that sooner rather than later.

Weve managed to pay off all other debts over the last two years, but this biggie is still with us so this is my next challenge, lol

ch3101

Why would you refinance the loan now?

It's not "front-loaded". That would mean you pay all of the interest first.

It is the way every loan is as it has compounded interest instead of linear.

If you took another loan to cover that, you would then be paying even more IMO.

Tixy

ch3101 wrote: »

If you took another loan to cover that, you would then be paying even more IMO.

Well that would depend on what potential rate they could get a new loan for.
If they could get a conventional mortgage from a mainstream lender at say 4% and kept the payment around £300 a month then they would pay a lot less overall and have fully repaid much sooner.

Thrugelmir

twinkler wrote: »

We were thinking about refinancing this loan, so might look at doing that sooner rather than later.

Might be a hefty early redemption fee.