Extortionate interest

Jacks1919

I’ve got a personal loan with Transave at12.9%apr and the current balance is around 12k. 

I’ve just had a look at my transactions. I’m paying back £53 a week but £30 a week is being gobbled up by interest! Surely this can’t be right? 

I will be paying this back for the rest of my life if only roughly £23 a week is paying back the actual amount borrowed!

Ayr_Rage

How much is the original loan and over what period?

How many payments have you made?

At the start of any loan the interest always outweighs the capital repayment.

If it is a regulated agreement at 12.9% APR then the figures will be correct.

Have a look at a loan amortization calculator.

vacheron

Jacks1919 said:

I’ve got a personal loan with Transave at12.9%apr and the current balance is around 12k. 

I’ve just had a look at my transactions. I’m paying back £53 a week but £30 a week is being gobbled up by interest! Surely this can’t be right? ..

It surely can. 

12.9% of £12,000, is £1,548 per year in interest. Dividing this 52 gives £29.77 per week. 

I'm assuming you have only recently taken out the loan? at this current rate it will take about 7 years at your £53 per week monthly payment to fully pay this down. Not exactly the rest of your life, but certainly quite a long time.

As the loan is steadily repaid, the amount of interest being charged will reduce, but as you have realised, this only hapens slowly in the first years, but the higher the APR.... and the longer the loan term... the higher the ratio of interest to repayment will be.

Then only way to improve this situation is to overpay, or look to switch to a loan with a lower APR.

MyRealNameToo

Jacks1919 said:

I’ve got a personal loan with Transave at12.9%apr and the current balance is around 12k. 

I’ve just had a look at my transactions. I’m paying back £53 a week but £30 a week is being gobbled up by interest! Surely this can’t be right? 

I will be paying this back for the rest of my life if only roughly £23 a week is paying back the actual amount borrowed!

£12,000 x 12.9% = £1,548
£1,548 / 52 = £29.77

The above is technically simplified but yeah, welcome to how interest works and why borrowing should be a last resort decision. 

Assuming the repayments are fixed, as they normally are on loans, then previously your repayments were even more interest and less capital repayment and as you slowly repay the capital the repayments will increasingly be paying off the capital 

CliveOfIndia

As others have said, this is correct - it's simple mathematics.

Interest is calculated, at the prescribed APR, on the outstanding balance.  In the early stages of any loan, you have more capital outstanding, hence more interest to pay.  So for each payment you make, a large proportion of that payment goes towards interest, with only a small proportion going to chip away at the principle.

As time goes on, the situation gradually reverses, with more of your payment going towards the principle since there is less interest to pay.

This is not, as is often misunderstood, front-loading of interest (which is illegal).  It's just basic maths.

And because interest is always calculated on the outstanding balance, any overpayments you make (if you're allowed to do so without penalty) will reduce the amount you pay overall.

saajan_12

Jacks1919 said:

I’ve got a personal loan with Transave at12.9%apr and the current balance is around 12k. 

I’ve just had a look at my transactions. I’m paying back £53 a week but £30 a week is being gobbled up by interest! Surely this can’t be right? 

I will be paying this back for the rest of my life if only roughly £23 a week is paying back the actual amount borrowed!

There is some ammortisation to consider but using simple interest £12,000 x 12.9% / 52 weeks = £29.77 per week. 

You'd have seen that rate and been able to calculate that before taking out the loan.. The capital repayment is just from any payment above the interest - you may be able to increase payments (check the terms of your loan) and if so, all the extra goes to capital. 

At this rate, it'll be 6.5 years from now.