Loan + Interest?

anotheruser
anotheruser Posts: 3,485 Forumite
First Anniversary Name Dropper First Post I've been Money Tipped!
I got a loan out over 10 years ago where I had some sort of account with the money in (maybe they put it in my current account, I can't remember), but the interest was already calculated, so I simply had to make the minimum payment per month (or could pay any amount over).

Is that how loans are still done?

Comments

  • [Deleted User]
    [Deleted User] Posts: 35,242 Forumite
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    Monthly payments are set by calculating the interest on the capital to the end of term and payments being made equal over the term. Any overpayments will result in less interest being charged and the term ending earlier (or the monthly payment reduced)
  • Ebe_Scrooge
    Ebe_Scrooge Posts: 7,320 Forumite
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    Front-loading of interest is no longer allowed.  But with any ordinary loan, repayments are calculated on the assumption that it'll run full term, and each month you pay some capital and some interest.  You can usually make overpayments if you wish (potentially there may be a charge for doing this), but doing so will reduce the amount you pay overall - interest is calculated on the outstanding balance.
  • can you please confirm when this change in repayments took place as I have a loan where I am paying of the interest fist before paying of the principle sum borrowed i believe the loan (second mortgage was mis sold but the lender refuses to aknowledge this) the loan was taken out in 2010 and so far we have paid over £40.000 which according to the lender is purely interest only nothing has in fact been paid off the principle sum
  • can you please confirm when this change in repayments took place as I have a loan where I am paying of the interest fist before paying of the principle sum borrowed i believe the loan (second mortgage was mis sold but the lender refuses to aknowledge this) the loan was taken out in 2010 and so far we have paid over £40.000 which according to the lender is purely interest only nothing has in fact been paid off the principle sum
    Front loading hasn't been allowed for a long time but many lenders will simply add the entire terms interest just to make it simpler for the customer to understand.  If you were to pay it off early the additional interest would be wiped.
  • Pixie5740
    Pixie5740 Posts: 14,515 Forumite
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    can you please confirm when this change in repayments took place as I have a loan where I am paying of the interest fist before paying of the principle sum borrowed i believe the loan (second mortgage was mis sold but the lender refuses to aknowledge this) the loan was taken out in 2010 and so far we have paid over £40.000 which according to the lender is purely interest only nothing has in fact been paid off the principle sum
    That sounds more like the effects of compound interest over a long period rather than front loaded interest, which as others have said, hasn’t been allowed for a long time. 
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