Front Loaded Loans?
Discussion
I took out a graduate loan from my bank which had a nice interest rate.
Lets say the sum was 10k and of that the interest is 2k (made up figures).
Now I called up and asked for a status on my loan, they tell me that its a front laoded loan and all the payments I have made so far (say 3k) have paid off 2k of the interest and 1k of the loan. So I owe 9k.
So all payments I make now just pay off the capital.
I thought that interest is only charged on the money borrowed, so for example. If I had 8k of the original loan left I would only pay a certain amoutn of interest on that - i.e the earlier I pay back the lower the interest
Not much floating around on the internet about this - is there another name for these?
Any thoughts?
Lets say the sum was 10k and of that the interest is 2k (made up figures).
Now I called up and asked for a status on my loan, they tell me that its a front laoded loan and all the payments I have made so far (say 3k) have paid off 2k of the interest and 1k of the loan. So I owe 9k.
So all payments I make now just pay off the capital.
I thought that interest is only charged on the money borrowed, so for example. If I had 8k of the original loan left I would only pay a certain amoutn of interest on that - i.e the earlier I pay back the lower the interest
Not much floating around on the internet about this - is there another name for these?
Any thoughts?
Ungarsee said:
Google the 'rule of 78'. Should explain all
Also known as the 'sum of the digits' method. The formula is n(n+1)/2
Say you have 5 payments of £2,400, this gives (5 x 6)/2 = 15
1st payment will include an interest payment of (5/15 x 2000) = £666.67 out of your £2,400 payment.
Subsequent payments will reduce this until you have cleared your debt (2nd payment will be 4/15, then 3/15 etc.)
Sounds like they are using the 'actuarial' method though, i.e. (interest x capital) at start of the period, then your payments reduce this total balance.
It sounds like they are being shysters [sic] though, I don't think that they can charge the full amount of interest from the beginning of the loan period.
Indeed, I though if someone wanted to pay back the loan early the amount of interest they paid would relate to how long they had the money or something
i dont fancy trying to read throughthe CCA thogh
It is with one of the UKs biggest banks though, so i would be surprised if they were selling a product that is totally wrong.......
i dont fancy trying to read throughthe CCA thogh
It is with one of the UKs biggest banks though, so i would be surprised if they were selling a product that is totally wrong.......
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