Front loaded interest legal?

Gaz83

Tin_Can__Man wrote: »

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

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

That's now how interest works.

Tin_Can__Man

Caz3121 wrote: »

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

That is complete J****Y

retepetsir

Tin_Can__Man wrote: »

That is complete J****Y

This is pretty much how all loans work? The bulk of your payments to begin with are just paying the interest. Same with mortgage, car finance, etc.

CLAPTON

Tin_Can__Man wrote: »

That is complete J****Y

the calculation is extremely simple




in month 1 you owe 6100 and are paying 30.8% apr


so the interest for the first month will be
6,100 x 30.8%/12 = 157
as you repayment are round 200 per month then that means you repay about 43 in capital




the second month you owe 6,100 -43 = 6,067
so the interest is 6,067 x 30.8%/12 = 156




after 12 payments you will owe about 5,494


unless there was a payment holiday at the beginning of the loan or any fees




every loan works that way and rightly so

Gaz83

CLAPTON wrote: »

the calculation is extremely simple




in month 1 you owe 6100 and are paying 30.8% apr


so the interest for the first month will be
6,100 x 30.8%/12 = 157
as you repayment are round 200 per month then that means you repay about 43 in capital




the second month you owe 6,100 -43 = 6,067
so the interest is 6,067 x 30.8%/12 = 156




after 12 payments you will owe about 5,494


unless there was a payment holiday at the beginning of the loan or any fees




every loan works that way and rightly so

Interest was 35.6%.

Interest for first month is £6,100 x 35.6%/12 = £180.97, so after the first month OP would only have paid £19.03 in capital and would still owe £6,080.97.

Interest for second month is £6,080.97 x 35.6%/12 = £180.40, so after the second month OP would only have paid £19.60 in capital and would still owe £6,061.37.

And so on.

Nothing wrong (and certainly not illegal) about what the loan company have done, OP - that's how loans work.

dealer_wins

Tin_Can__Man wrote: »

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

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

You are not borrowing £6100 over 60 months. The only time you borrow £6100 is for the 1st month. After that the amount you are borrowing reduces monthly.

If you were borrowing £6100 for the whole 60 months you would only be paying the interest each month of £180.97 and the total interest would be £10858 (£2171.60 a year).

It would work like an interest only mortgage, where at the end of 60 months you would still need to repay the £6100 in a lump sum :eek:

When you take out a loan like yours, the amount you owe reduces each month until you clear it on your last repayment.

In the early part most of your fixed repayment goes towards interest as the balance starts at £6100, and every month the interest element decreases slightly as the balance gradually reduces, and on your last repayment becomes £0.

iolanthe07

It's amazing how people take out largish loans at eye watering interest rates without even understanding how the repayments work. OP, at the beginning of the loan almost all the repayment is interest. At the end of the loan almost all the repayment is principal. It is not front loading; it is not rocket science; it is how virtually all loans, including repayment mortgages, work. Read Tixy's post again - (s)he explained it clearly and succinctly.