Front loaded car loan

MallyGirl

Although the labels are saying mortgage this is basically how the payments break down.

MinuteNoodles

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. 

I'll illustrate. I'll use an APR of 12% because it makes the maths simple as it's 1% interest per month on the outstanding balance.

So lets begin with a loan of £10,000 and repayments of £200.

Month 1: £10,000 balance. 1% interest=£100 added, £10,100 owed. Payment of £200 made, new balance £9,900.

Month 2: £9,900 balance. 1% interest=£99 added, £9999 owed. Payment of £200 made, new balance £9,799.

Month 3. £9,790 balance. 1% interest=£97.90, £9887.90 owed. Payment of £200 made, new balance £9687.90

etc etc. As you can see as you go on the less interest is being added so the more money is paid off the outstanding capital which means that the amount owed drops more so even less interest is due the following month, rinse and repeat until you get to the final year where virtually everything bar a couple of quid is going to repaying the debt and just a couple of quid a month of interest is added.

That's how interest works whether it's a loan or a mortgage. They tell you what the total interest payable is and the total amount you'll repay because the law requires them to in the hope that you'll go "Oh My God that's ridiculous" and decide to save up or just not bother although sadly most people skip that part and just go "it's only £200 a month, that seems reasonable", take out credit at 49.9% APR over 5 years and are then surprised when they pay back two and a half times what they borrowed. If you were to repay the loan at some point during the term then the total amount you'll repay will be less because there would be no interest charged on the outstanding amount repaid from the date you settled it, other than the 56 days interest they're allowed to.