Front loaded interest legal?

Tin_Can__Man

Hi all, I took out a loan from Moneyway last June 2013. Amount borrowed was £6100, the Interest rate was rather high at 35.6%.

As of Today's Date I have paid £2600 in total. I phoned them and asked for a settlement figure and they informed me that I still owe a Capital amount of £5760.

Is it legal to charge all the interest at the front?

It would be agreeable if I was to pay the loan over the 60 months but to borrow £6100 for just one year should only cost £1200 approx.

Any help would be appreciated.

Tixy

They are not allowed to charge all the interest up front. And they haven't done.

If you took out a loan of £6100 at 35.6% over 60 months the total interest would be £7030. So if they had charged all up front would mean they would be giving you a settlement figure of (£6100 + £7030 - £2600) £10,530.

Interest is charged based on the daily balance of your loan and so more interest is charged in the first year than in later years.
So after month 1 the interest charge would be £181, after month 2 £180 by month 10 £170, and so on.

After 12 monthly payments your outstanding capital should be £5564 to which they are allowed to add 58 days interest, which would take it up to the £5760 you have been quoted.

If you put the loan details in to an online calculator like this one - http://www.theguardian.com/money/loan-repayment-calculator-interest-rates you will get a clearer understanding of how the interest is charged over the term of the loan, and how the balance reduces.

antrobus

Tin_Can__Man wrote: »

Hi all, I took out a loan from Moneyway last June 2013. Amount borrowed was £6100, the Interest rate was rather high at 35.6%.

As of Today's Date I have paid £2600 in total. I phoned them and asked for a settlement figure and they informed me that I still owe a Capital amount of £5760.

Is it legal to charge all the interest at the front?

It would be agreeable if I was to pay the loan over the 60 months but to borrow £6100 for just one year should only cost £1200 approx.

Any help would be appreciated.

You borrowed £6,100. The interest rate was 35.6%.

Back of the envelope: 35.6% of £6,100 is £2,172. So far you've paid £2,600 in total. So you'd only expect the amount owing to have fallen by a few hundred quid.

CLAPTON

Tin_Can__Man wrote: »

Hi all, I took out a loan from Moneyway last June 2013. Amount borrowed was £6100, the Interest rate was rather high at 35.6%.

As of Today's Date I have paid £2600 in total. I phoned them and asked for a settlement figure and they informed me that I still owe a Capital amount of £5760.

Is it legal to charge all the interest at the front?

It would be agreeable if I was to pay the loan over the 60 months but to borrow £6100 for just one year should only cost £1200 approx.

Any help would be appreciated.

it is not allowed to charge all the interest upfront


however they haven't done that as total interest would be about 5,900




basically you pay more interest at the beginning of the loan that towards the end as you owe more at the beginning than towards the end




so in your case the interest in month 1 would be about 157
month 2 a little less 156
by month 12 you would be paying round 144 etc and have paid about 1,800 interest to date


they are allowed to charge an early repayment amount so a settle figure of round 5,700 is reasonable




however if they are saying the capital alone is 5,700 then that seems high


was there a no pay month or so at the beginning or any other fees.

Tin_Can__Man

CLAPTON wrote: »

it is not allowed to charge all the interest upfront


however they haven't done that as total interest would be about 5,900




basically you pay more interest at the beginning of the loan that towards the end as you owe more at the beginning than towards the end




so in your case the interest in month 1 would be about 157
month 2 a little less 156
by month 12 you would be paying round 144 etc and have paid about 1,800 interest to date


they are allowed to charge an early repayment amount so a settle figure of round 5,700 is reasonable




however if they are saying the capital alone is 5,700 then that seems high


was there a no pay month or so at the beginning or any other fees.

Yes, the capital is approx £5,700. It should be around £4800.

ViolaLass

Tin_Can__Man wrote: »

It would be agreeable if I was to pay the loan over the 60 months but to borrow £6100 for just one year should only cost £1200 approx.

Where did you get £1200 from?

Tin_Can__Man

ViolaLass wrote: »

Where did you get £1200 from?

That's how much it is for 1 years interest.

Tixy

Tin_Can__Man wrote: »

That's how much it is for 1 years interest.

Where does it say that?

ViolaLass

Tin_Can__Man wrote: »

That's how much it is for 1 years interest.

But to get that, you would have had to be paying the capital back over the year too i.e. your monthly payments would have been much higher. Instead of paying £218 a month, you would have needed to pay £611 a month. You can't just turn around at the end of one year and say "You should let me pay only £1200 in interest".

Tin_Can__Man

Tixy wrote: »

Where does it say that?

To borrow £6100 over 60 months would cost £6200.

Therefore to borrow the money for 1 year should cost approx £1200.

Caz3121

Tin_Can__Man wrote: »

That's how much it is for 1 years interest.

You need to read the responses that have been given. Interest for the first year will be over £2k, interest in the last year is under £450....the interest is calculated on the amount outstanding

try using this for a better understanding of the interest impact
http://www.theguardian.com/money/loan-repayment-calculator-interest-rates

edit: just realised link was given by Tixy in post #2. But OP had obviously not looked at it as was still confused