Interest on Loan - Help!!

richardcalver

Hi....

Apologies if you have already seen this post.... When I clicked to post my internet went down!

I need some advice with my Mums loan, The lender has told her the interest will be added at the begining of the loan.

The loan is for £8500 over 10 years so the interest works out around £3000, The idea was to stretch it out over 10 years to bring the monthly repayment down to £99.12 and then to pay it off asap (no early redemption payments)... probably in the next 1- 2 years depending on her bonus scheme at work.. What I'm concerned about is the interest being applied at the beginning? When my Mum spoke to the lender about this they said she'd probably get a rebate? We're now stuck not knowing how they work this out as I would like to help her pay this off next year but if they take the same amount in interest now or in 10 years time we might aswell hang it out... Seems like a bum deal though.

Your thoughts would be gratefully apprciated.

Richard Calver

CLAPTON

Obviously you/she needs to read the T&Cs of the loan before she signs anything.
However, if its a normal unsecured loan then it will be regulated by the CCA which specifies how early setttlement is dealt with. In practice this means that the penalty for early payment is 2 months interest.
The T&Cs should give you examples of early settlement at 1/4, 1/2, 3/4 way through the loan period.

However, the CCA regulation do not specify how overpayments are handled so it important to read the T&Cs if you want to do this.

Also make sure she doesn't take out PPI as this is usually added at the beginning and interest charged.