Daily interest charge on loan..

Some1onthenet

Hi,

I'm looking for some advice on behalf of my partner, please?

Recently my partner decided to consolidate some debts and loans into one payment per month. Because she banks with the Halifax she decided to get the loan from them to make it easier for paying it back etc. The Halifax also offered her 5.9% apr over 48 months.

The first payment was taken from Halifax at the end of August. She didn't think to check the loan statement until a few days ago and noticed an extra amount had been added to the repayments. I checked the account for her and noticed the payments she had made (two so far), both payments had around £60.00 added.

When I checked the emails with the loan details I noticed this section.

3) How do we work out the interest?

When you borrow money from us, you have to pay back what you borrowed plus interest. We charge daily interest on the amount you owe at the fixed Annual Interest Rate and you agree to pay this interest until you repay the loan in full. This is added to your loan balance on your monthly repayment date. Each monthly repayment will pay off this interest and some of the loan.

4) What if you change your mind about your loan?

You have the right to withdraw from this agreement up to 14 days after we give you the money. You don’t have to give us a reason for withdrawing from the loan.
To withdraw from your loan, you must call us, write to us or visit your local branch. Our telephone number and address are in the contact details box below. After telling us that you want to withdraw, you must pay back what you have borrowed plus interest, as soon as you can but no later than 30 days after you tell us that you want to withdraw from the loan. The daily interest of £1.95 is charged from the date we give you the money until the date you repay it. Payments can be made in your local branch or by calling us on the telephone number in the contact details box below. If you don’t do this then we may take legal action against you. You will be expected to pay our reasonable costs for doing this.

So from what I understand she will be charged daily interest on the loan for 48 months (total £2880.00). The total repayment of the loan is not going to be 4 years if £60 is deducted every month from the payments she makes. The only way I see that the loan would finish in 4 years would be if she added £60 to the monthly repayments.

So my question is there anything we can do or are we stuck with the extra payment per month?

Thank you in advance for any help.

ps, I know she should have read the loan agreement first

[Deleted User]

The interest isn't £60 a month - it's charged on the declining balance, so becomes less over time, although still charged daily and added monthly.

You're stuck with paying interest for as long as you have the loan. You can stop interest by paying off the loan (subject to two months early settlement).

Some1onthenet

Thanks for the reply.


The £60 extra per month on top of the loan+interest is £1.95 per day from the start of the loan to the end. The £1.95 daily interest is a fixed payment as I mentioned in the post and taken from the loan agreement email.
I checked my partner's loan account and saw the two extra charges. She made two payments to the loan £289 total £578. The overall remaining balance only went down by £460.



Cheers

nick74

Some1onthenet wrote: »

Thanks for the reply.


The £60 extra per month on top of the loan+interest is £1.95 per day from the start of the loan to the end. The £1.95 daily interest is a fixed payment as I mentioned in the post and taken from the loan agreement email.
I checked my partner's loan account and saw the two extra charges. She made two payments to the loan £289 total £578. The overall remaining balance only went down by £460.



Cheers

The email is badly worded, £1.95 is not a fixed payment. The £60 is one month's worth of interest (roughly 31 days x £1.95) and will diminish month by month as the capital balance is cleared. I've just run the figures you've given through the loan amortization sheet in Excel and they look correct. Did she borrow approx £12300 originally?

[Deleted User]

Some1onthenet wrote: »

The £1.95 daily interest is a fixed payment

No, it's not.

That's not how interest works.

enthusiasticsaver

As ZX81 says the interest will not be £60 a month. As the balance goes down the interest will decrease. Your partners loan repayments have already been set. £289 per month over 48 months totals £13872 and it will be repaid in 4 years.

Over time the interest payments will reduce and the capital payments will increase so the capital only reduces a small amount over the early stages of a loan but as time progresses and she gets nearer the end of the loan the capital repayments will increase and interest will decrease but the payments are averaged out over the term of the loan. This is why a loan is an expensive way of paying off debt but time after time people look for this way of sorting their debts. She has only just taken the loan out so this is not going to start decreasing the amount borrowed for some time yet.

Debt consolidation is not an option I ever recommend simply because the interest paid is more because it is paid over a longer period and also because it does not rectify poor spending behaviour and the reason for the credit card debt in the first place.

molerat

That paragraph clearly states that the £1.95 daily interest is charged on the loan if you exercise your right to withdraw from the agreement within the 14 day cooling off period.

4) What if you change your mind about your loan?

You have the right to withdraw from this agreement up to 14 days after we give you the money. You don’t have to give us a reason for withdrawing from the loan.
To withdraw from your loan, you must call us, write to us or visit your local branch. Our telephone number and address are in the contact details box below. After telling us that you want to withdraw, you must pay back what you have borrowed plus interest, as soon as you can but no later than 30 days after you tell us that you want to withdraw from the loan. The daily interest of £1.95 is charged from the date we give you the money until the date you repay it. Payments can be made in your local branch or by calling us on the telephone number in the contact details box below. If you don’t do this then we may take legal action against you. You will be expected to pay our reasonable costs for doing this.

Some1onthenet

Thank you very much for all of the replies.


@nick74 and enthusiastic, Yes she borrowed £12,394, total to repay £13,902.



Forty-Eight Monthly repayments of £289.00. Unfortunately due to unforeseen problems she had to borrow that amount.



Thanks again for the help.

foxy-stoat

She should be winning then, 48 x £289 = £13,872.00.