Interest charges

Hairybhoy

Hi
Today I was looking at a loan I took out over 4 years (finishes 2022) from Santander for £17000 in June 2018, to consolidate other debt. I have to pay back £20849.28, which I couldn't understand as the APR was 10.9%.
Reading on I also saw another charge called "The rates of interest which apply to the credit agreement" also 10.9%
Can anyone tell me what this means and if it is legal.
I was desperate at the time and needed the loan, but if I were offered that today I certainly would not take it on.
Thanks
H

[Deleted User]

Hairybhoy wrote: »

I have to pay back £20849.28, which I couldn't understand as the APR was 10.9%.

You have to pay a total of £20,849.28 over the term because your APR is 10.9%. If it was higher you would pay more, and less if it was lower.

All perfectly legal.

bhjm

I just guess, you you calculated 17.000 * 10.9% would be your repayment value?
Yes and no. But you forgot to add 4 years of repayment period.

Nearlyold

Hairybhoy wrote: »

Hi
Today I was looking at a loan I took out over 4 years (finishes 2022) from Santander for £17000 in June 2018, to consolidate other debt. I have to pay back £20849.28, which I couldn't understand as the APR was 10.9%.
Reading on I also saw another charge called "The rates of interest which apply to the credit agreement" also 10.9%
Can anyone tell me what this means and if it is legal.
I was desperate at the time and needed the loan, but if I were offered that today I certainly would not take it on.
Thanks
H

I'm guessing you thought 10.9% APR meant you would only pay total interest of 10.9% of £17,000 overall ie 17000x10.9% = £1853 in interest. That's not what 10.9%APR means, it means that you are charged the equivalent of 10.9% interest per annum for each year the loan is running, in your case it's charged monthly on the declining balance of the loan over the 4 years at a rate just under 0.9% (which is equivalent to an annual rate of 10.9%.) There is nothing illegal going on it's just that you've misunderstood.

username901

Hairybhoy wrote: »

Hi
Today I was looking at a loan I took out over 4 years (finishes 2022) from Santander for £17000 in June 2018, to consolidate other debt. I have to pay back £20849.28, which I couldn't understand as the APR was 10.9%.
Reading on I also saw another charge called "The rates of interest which apply to the credit agreement" also 10.9%
Can anyone tell me what this means and if it is legal.
I was desperate at the time and needed the loan, but if I were offered that today I certainly would not take it on.
Thanks
H

At least something good has come from that

BoGoF

10.9% whilst not greatest interest rate out there, it's far from what I would call 'high'

yksi

I think the magic words are probably "to consolidate other debt". You had debts and when you applied to borrow £17,000, Santander did their check based on the idea of adding £17,000 to your total debts - lenders assume (correctly) that many people don't cancel their other lines of credit when they "consolidate", so they had to consider whether you could afford your old repayments plus your new ones. At that level of repayments they decided your risk was worth a 10.9% interest rate. Banks have a lotta lotta figures on how often certain types of customers fail to repay and they adjust their offers according to their perceived risk.

If the Santander loan is now your only debt and you've closed credit cards since taking out the loan, you could look around to see whether you can get a better deal than 10.9% - use a comparison tool to avoid a hard search. If you haven't closed any cards then I suspect future offers will be even higher than 10.9%, because they can now see you've got even more access to credit than before.

Ben8282

A rough calculation shows the total amount repayable to be correct. Nothing wrong here.

Hairybhoy

Thanks everyone, looks like I misunderstood, the good thing is, I did consolidate my debts so I can afford the loan, it's just a bit of a bummer known I've got two and a half years to go.

[Deleted User]

You can always pay it off early and save some money if you have the funds.