Interest taken by banks before loan principal.

Optimiss

Hi, I recently tried to pay back a loan half way through the term. I found that the interest was taken in the first half of the term and the loan amount had not been touched at all! Should the original amount not have been paid from the first instalment onwards, along with interest? I feel I am trapped in this loan as it does not make financial sense to pay it back at this point as the amount to be paid back now is only the loan principal amount, spread out over the second half of the term. At this point I have paid interest even for the remaining half of the term. If the instalments had been a mix of interest as well as principal from the start, I would be paying back much less.  

[Deleted User]

What sort of loan was this, and what are the figures and term involved?

Nebulous2

Have you asked for a settlement figure? 

Some loans show the starting figure, add interest and take away payments each month. 

Some loans show the total to be repaid and take away the payments made each month. 

With the second type an early settlement figure will be lower than the figure shown, as they deduct some interest. 

The outcome with both is the same. It’s simply a difference in how it is recorded. You’re (almost) always better paying an interest bearing loan early, as it saves you money. 

phillw

You'll have to give far more details about the lender & the type of loan. I'm not sure but my understanding of what you're saying doesn't sound legal.

bris

Front loading interest is not legal in the UK. That's what this is but it's another story from a one time poster.

Waiting for someone like me to come along and point out why it's not legal, how dare they blah blah blah, then they sit back with the popcorn.

foxy-stoat

Optimiss said:

Hi, I recently tried to pay back a loan half way through the term. I found that the interest was taken in the first half of the term and the loan amount had not been touched at all! Should the original amount not have been paid from the first instalment onwards, along with interest? I feel I am trapped in this loan as it does not make financial sense to pay it back at this point as the amount to be paid back now is only the loan principal amount, spread out over the second half of the term. At this point I have paid interest even for the remaining half of the term. If the instalments had been a mix of interest as well as principal from the start, I would be paying back much less.  

What was the loan amount, interest rate, term and monthly payments?
You will find that you have indeed been paying some of the capital but if you took out a high interest rate loan over a long time and requested a settlement figure fairly early then yes, it would seem that the capital hasn't gone down and you have been paying interest only, as they charge around 2 months worth of interest on overpayments.