Is interest pre loaded on loans?

GolfR

Hi all

I have two loans which are £7915 on 2.9% with Tesco and £8729 on 3.5% with Lloyds. I’m trying to decide which one is best to pay off first by paying extra each month. I know the interest accrues daily on the Lloyds loan but I’m not sure about the Tesco one and was hoping someone here might know.

I think psychologically I would prefer to pay the Tesco one first, despite it being a lower rate, as it’s an older loan for a car I sold 18 months ago and the Lloyds one is for my current car therefore it makes me feel happier to get rid of the loan for the car I no longer have. However if Tesco pre load their interest then it makes no sense at all to pay this one off first.

My only other debt is an interest free 4 year thing with Harveys.

Thanks for any information and/or words of advice.

TheAble

You'll need to check your terms to be sure, but a quick internet search suggests that both have a 2 month interest early settlement charge which is fairly standard.

Can also check with customer services of course.

DayDreamerandGeneralWaster

I had a first direct loan where the interest was added to the total amount from the beginning. I worked out roughly how much interest l would be paying to the point of paying it off and when l got close to it l called them and paid the rest less the interest l owed. Probably best to call them. 

Jami74

GolfR said:

I have two loans which are £7915 on 2.9% with Tesco and £8729 on 3.5% with Lloyds. I’m trying to decide which one is best to pay off first by paying extra each month. 

Interest accrues daily on both loans. Pay the loan with the highest percentage to save the most money. It doesn't really matter what you borrowed the money for, pay it all back as quickly and cheaply as possible.

MrFrugalFever

I was under the assumption that personal unsecured loans are generally front loaded, with interest applied at the start, but I think it depends on the type of loan and the t’s & c’s of the lender. I know that under the consumer credit act, when settling in full the lender is entitled to charge up to 56 days of interest.
partial settlements are allowed and the interest remaining will be calculated accordingly. Some lenders allow shorter terms or lower monthly payments as a result of overpayments.

with credit cards the interest is calculated daily as it is not a fixed amount.

with certain secured loans such as car personal contract purchases, the interest is calculated up front and spread monthly, rebated if settled in full with remaining months of interest left (including adding 56 days charge).

best to read the terms and conditions.

molerat

Interest is never "front loaded" on a regulated loan. It is shown at the start purely to indicate the total you will pay when repaying the loan over the whole term and to work out the monthly payments.

As stated earlier, as both loans have the same basic t&cs paying more towards the highest interest loan is more beneficial.

GolfR

Thanks all that’s great news. I have no plans to pay off in full, only to pay extra token amounts towards each month. I’ll go for paying off the Lloyds loan since it’s at a higher rate.