Loan shock

Thommo_2

In November last year I took out a personal loan with HSBC for £10,000, the money was credited to my account instantly and I was very pleased. Have just checked my personal loan account online and on the date of transfer to my bank account is the following line:

"21 Nov. DR LOAN DRAWDOWN £11239.59"

On re-reading the small print of the loan agreement it seems the bank adds the total interest onto the loan from day one thereby ensuring they get the full amount even if I repay early..
A crafty trick I hadn't come across before :mad:

PeacefulWaters

Nothing crafty.

They rebate some of the interest included in that figure if you clear the debt early.

Free_Spirit_31

That's how loans usually work. They charge you the interest in advance and the loan amount including interest is stated on the calculation.

bigadaj

Free_Spirit_31 wrote: »

That's how loans usually work. They charge you the interest in advance and the loan amount including interest is stated on the calculation.

I'm not sure that's totally correct.

It is transparent to state the total interest and cost of credit at the outset but not to charge interest in advance. The actual interest charged will accrue through the term of teh loan, interest normally being saved by early repayment but with the potential for a charge of typically two months interest.

This doesn't allow anyone to ignore terms and conditions but is a reasonable approach which should be followed.

Thommo_2

Free_Spirit_31 wrote: »

That's how loans usually work. They charge you the interest in advance and the loan amount including interest is stated on the calculation.

The last time I had a personal loan interest was calculated & added on a monthly basis; not adding 5 years of interest on day one.

PeacefulWaters

Thommo wrote: »

The last time I had a personal loan interest was calculated & added on a monthly basis; not adding 5 years of interest on day one.

Id hazard a guess the total amount payable was on the loan agreement for both loans.

bigadaj

To clarify, the illustration will show the total amount of interest but they don't load it upfront. Early repayment will reduce the total interst paid in most cases.

Thommo_2

bigadaj wrote: »

To clarify, the illustration will show the total amount of interest but they don't load it upfront. Early repayment will reduce the total interst paid in most cases.

I beg to differ, starting balance for the loan is listed as £11,239.59 and after three monthly payments balance owing now stands at £10,677.81

Pipz

My loan was the same, but as I've made payments, in addition to the regular ones, I've received an interest rebate each time I've done so.

~Brock~

This is a perfectly simple and normal scenario.

If the interest rate is fixed throughout the term then the total interest will be part of the overall balance on day one. This is because the rate is guaranteed not to change and therefore the total amount payable is a known quantity from the outset. As others have said if the balance is paid off earlier then a rebate is applied.

Those who have said they have had loans where interest is added monthly will have had a variable rate loan, within which the total amount payable is not known at the outset because it could be subject to ongoing rate changes (as First Plus borrowers have found to their cost).

So there you go....its perfectly simple and no great evil conspiracy.

If I had the choice I would go for a fixed rate loan every time.

Apples2

I too don't see the problem.

You reached an agreement you would give the bank £11239.59 in exchange for £10k of their money.

£11239.59 is how much the bank will get back, unless you repay early when they will give you a rebate but they don't know you will, or how much or when so they don't try to second guess.