Personal loan from First Direct

nobby24

I got a personal loan from FD over a year ago, I borrowed 4,500 over 5 years, I got my first annual statement today and after paying £90 a month the amount I owe has not reduced, this is because the interest for the entire loan is piled on up front and becomes part of the loan. Is this normal for personal loans these days?

Edi81

The early payments of a loan only show a small amount repaying the principal each month as interest is calculated on the whole balance. This is usual.

[Deleted User]

Are you sure it has not reduced at all? If so, were there any additional fees?

nobby24

I borrowed 4,500 but they add to that the interest up front making the loan 6,000 and the payments come off the whole amount which after one year means i still owe more than 4,500, the amount i borrowed.

[Deleted User]

They don't add the interest up front . It's calculated daily. The 6k figure will show the total amount over the full term.

You need to check again or phone them up.

Gaz83

nobby24 wrote: »

I borrowed 4,500 but they add to that the interest up front making the loan 6,000 and the payments come off the whole amount which after one year means i still owe more than 4,500, the amount i borrowed.

If you're paying £90 a month over five years then this should make your total repayment £5,400, not £6,000.

jelajelavic

The interest is effectively calculated daily but it is assumed you wont repay above and beyond your repayment terms so they roll the interest for the whole period then calculate equal monthly repayments (with the exception of first or last payment if not dividable equally). So your loan should show capital and interest for whole period and then you will pay that off. However, if you make an additional repayment then they will have to recalculate interest and reduce number of repayments. HSBC pay this "interest rebate" at the end of the loan, so I assume first direct will do the same as it is a subsidiary of HSBC.

Furthermore, if you wanted to pay the whole amount back, you would get a settlement figure which would be different to your current balance as they would need to exclude future interest.

Phil_Linder

What does the statement actually say? Is the remaining Capital £4500 of does it just say the amount owed is over £4500? If you were to pay it off now would they still charge you over £4500?

There used to be fixed interest loans on sale that required you to pay the full loan plus interest even if paid off early. But I'm sure they got outlawed a number of years ago?