Any advice welcome

Novice123x

I took a loan out 4 months ago for £3800.
I have made 4 payments of 308.11.(totalling £1232.44)
I called for a settlement figure today of £4224.
This would mean for 4 months loan I would be paying back £5456 or £1656 in interest.
Interest rate is at 73.1% per annum.

The reason they gave for this is that they front load your interest so all your payments at the start of your loan cover the interest and you don't actually start paying off your capital until further down the line.

Is this common practice?
It doesn't state they do this in the T&C's that I have or the loan agreement.

Had I known his prior to taking out the loan - I probably would have looked at an alternative.

Any advice welcome!

[Deleted User]

The interest isn't front loaded.

It's simply that interest is much higher in the early months as the balance is so much higher. All loans operate this way.

The sooner you pay it off, the more you will save. And at that APR, you can save an absolute fortune.

Novice123x

Thank you for your response.

The customer service agent told me that it was front loaded and I hadn't paid anything towards the capital/the actual amount of the loan.

As you have explained the payments should bring the balance down and therefore the interest but if my payments aren't touching the 'original loan balance' how can that be?

Unless I am paying interest ontop of interest?

Thank you for your help

[Deleted User]

The customer service agent was wrong. Front loading was banned years ago.

Your payments ARE bringing the balance down. But at the beginning of the loan, a greater proportion of your payments are the interest, as the capital is higher. As time goes on, the balance shifts.

They have added two months interest early settlement fee as allowed for. There's no 'interest on interest'.

Bottom line is, paying it off today is the cheapest way of clearing it. The longer you leave it, the more interest you will pay.

TadleyBaggie

The settlement figure looks about right, at the start of the loan on around £70-75 is being paid off the capital per month so around £300. The amount of interest at this point is around £230 per month, so when you add 2 months interest it is over £4000 that is owed.

foxy-stoat

Novice123x wrote: »

Interest rate is at 73.1% per annum

F - me, think you should of read the T's & C's before agreeing to this loan.

Settlement is about right.

-taff

Stop getting payday loans.

foxy-stoat

73% interest is too cheap for a payday loan - they are at least 3 figures.