Front loaded car loan

[Deleted User]

No 

Because the loan wasn't front loaded.

JohnBailz

Wow this just looks terrible but it's the standard way? Seems pretty nasty considering that I've given them £2554 but only paid off around £400 of the total. 

[Deleted User]

It's simply how maths works. As the balance declines, more of your payments go towards reducing the capital.

Nearlyold

As zx81 says consumer loans in the UK are not front loaded and have not been since at least 1974, its true that you pay much more interest each month at the start of the loan than at the end but that's simply because you owe more at the start and interest is charged to your account each month as a % of the amount still owing (it's charged  per month at just under 1/12 of the annual interest rate)
I think you are mistakenly assuming that the total interest payable on a loan should be divided equally over however many months the loan is set up for, so that you  pay the same amount of interest each month - there are no loans that work that way and never have been.

Front Loaded Loans would be set up so that in the early years all your payments go towards the total interest charge and nil of the capital until all the interest has been paid and no rebates are given for early settlement - such a loan cannot be sold in the UK to consumers.

JohnBailz

OK zx81 thanks for your help here.
👍

DrEskimo

Its precisely why PCP loans cost so much more in interest despite having similar APRs. You are paying interest on the full amount (including the final payment), but only making payments towards a proportion of the loan (total amount borrowed minus the final payment), therefore the balance is reducing at a much slower rate (hence the lower monthly payment).

So if you think it's nasty on a standard loan, it's even worse on a PCP loan....

John_

JohnBailz said:

Wow this just looks terrible but it's the standard way? Seems pretty nasty considering that I've given them £2554 but only paid off around £400 of the total. 

At the start of the loan the balance is high, so the monthly interest is high.
This isn’t front-loading, it’s just how the maths works out.
How much do you think you should still owe, and could you show your calculations?

cymruchris

Another poster some time ago came across a similar situation. I don't know your term/APR etc - but have a look at the thread they posted - and my reply there - and you can see how your payments work when interest is taken into account:

https://forums.moneysavingexpert.com/discussion/6135179/early-repayment-charge-help

Petriix

On PCP you will be paying off the capital at a relatively slow rate compared to other types of borrowing. This is because, over the term, you are only paying off the difference between the initial purchase price and the balloon payment while the interest includes the entire amount.

For example with a loan of £10,000 and an APR of 10% over 2 years with a balloon payment of £7,500: you would pay around £180 per month, of which (initially) around £85 would be interest and £95 would be capital. After 2 years this would be more like £65 interest and £115 capital.

I suspect that your current PCP deal includes some fees or additional charges and the settlement figure will include an additional 60 days of interest. So, even if your headline interest rate appears good, the overall cost of the finance is high.

If you give some more details (term, start date, GFV, APR, fees etc.) then we'll be able to calculate the actual amounts.

[Deleted User]

molerat said:

Interest is calculated daily on the outstanding balance and at the beginning the capital balance is high thus a lot of interest.  As you go on the balance decreases so less interest is added daily and more capital is paid off. https://www.theguardian.com/money/loan-repayment-calculator-interest-rates will give you an idea of how it works.

Would this be able to be posted as a Sticky ?
The questions and answers that relate to it get asked frequently enough to validate it, surely ?