HSBC unsecured loan - front loading interest

The_Debt_Monkey

I took out a HSBC loan 12 months ago for £7.4k to fund a project up front. I took the loan out over 36 months but the intention was always to repay the loan early. The 36 month period was chosen because the monthly repayments suited us for the 12 months until we could pay back the full amount.

I have now come to pay back the load and obtained a redemption statement from them. To my surprise the redemption statement came back only slight less than the amount outstanding with HSBC stating that the first three to four loan payments went towards the loan interest.

My understanding is that the front loading of interest is banned by the consumer credit act and you are only required to pay interest based on he time and amount of money you borrow.

I've raised a dispute with HSBC and i'm waiting for a response. Has anyone else come across this before?

Regards
Jonathan

JuicyJesus

What does the redemption statement actually say? There will be a refund of interest if it's front-loaded. And did you ask for a "redemption figure" or a "balance"? The former will include the interest refund, the balance will be, well, the balance; the whole of the loan including front-loaded interest. You can ask for the redemption figure in writing at any time.

However, it stands to reason that the interest of the remaining two years of the loan would be less than it would in the first year. This is because you've got a higher outstanding balance over that first year than you would over the second or third, and as such the interest charged would be lower. So the interest refund will be proportionate to that. Assuming a rate of 10%pa simple for arguments' sake, you'd get charged (again, for arguments' sake - the actual figures would be lower, this is back of the envelope stuff) £740 in the first year, £488 in the second and £244 in the last. So the interest in the second and third years roughly approximates the interest you'd have paid in the first.

Front loading of interest, incidentally, is not banned.

CLAPTON

The_Debt_Monkey wrote: »

I took out a HSBC loan 12 months ago for £7.4k to fund a project up front. I took the loan out over 36 months but the intention was always to repay the loan early. The 36 month period was chosen because the monthly repayments suited us for the 12 months until we could pay back the full amount.

I have now come to pay back the load and obtained a redemption statement from them. To my surprise the redemption statement came back only slight less than the amount outstanding with HSBC stating that the first three to four loan payments went towards the loan interest.

My understanding is that the front loading of interest is banned by the consumer credit act and you are only required to pay interest based on he time and amount of money you borrow.

I've raised a dispute with HSBC and i'm waiting for a response. Has anyone else come across this before?

Regards
Jonathan

give us the actual facts

amount of loan
apr
period of loan
any payment free months at the beginning of the loan
settlement figure given... is this definitely a written settlement figure?
number of payment made

opinions4u

The front-loading myth perpetuates.

iolanthe07

All loans are 'front loaded' in the sense that nearly all the early repayments go to interest, and most of the principal is paid towards the end of the loan. This is how loans work, and the reason we get a string of indignant posters on here who think they've been ripped off when they ask for a settlement figure in the early stages of a loan.

_Andy_

Something like the below should help

http://www.amortization-calc.com/