Stupid loan question
Discussion
I have an existing personal loan with Northern Rock that's been running for a few years. For various reasons I now need to borrow an additional amount of money and NR seem to have a pretty good rate.
When I spoke to them a little while ago they indicated that I couldn't just take out an additional loan, I would have to increase the value of the new loan to clear the balance under the original loan so that I just have the one loan.
I'm confused about the way that interest is charged on loans - am I right in thinking that I lose out this way as they don't refund all of the interest that they've already charged me for the first loan or am I being dim?
When I spoke to them a little while ago they indicated that I couldn't just take out an additional loan, I would have to increase the value of the new loan to clear the balance under the original loan so that I just have the one loan.
I'm confused about the way that interest is charged on loans - am I right in thinking that I lose out this way as they don't refund all of the interest that they've already charged me for the first loan or am I being dim?
I'm unclear as to why you think they will refund any interest payment made. You borrowed X. You have been paying Y per month. Some of that is to pay interest, some is to reduce X to 0 by the end of the loan. They are suggesting that your new loan will be increased by Z where Z<X and Z is X minus the sum of the payments made (not including the interest component).
Is that right?
>> Edited by robbieduncan on Sunday 8th January 14:57
Is that right?
>> Edited by robbieduncan on Sunday 8th January 14:57
Standard practice I'm afraid. You have to take out a new loan of enough to meet the 'settlement figure' which is what they calculate you owe them on any given day; plus the amount extra that you want.
However it is thus possible by careful selection of the repayment term, to end up paying less each month than you do now (though that may mean more interest in the long run, of course).
However it is thus possible by careful selection of the repayment term, to end up paying less each month than you do now (though that may mean more interest in the long run, of course).
Robbie - I think if I could understand you're question I'd probably know the answer!! Numbers were never my strong point!!
What I'm saying is that I thing that the original amount I borrowed originally has had the full amount of interest for the full term of the loan added to it and I make payments on this basis.
What I think NR is suggesting is that I now borrow enough to clear the earlier loan (2 years early) but that the balance to clear the first loan allows a refund because it's being settled early BUT that it is not the full amount of interest that was added for the extra 2 years at the beginning of the loan?
So say I borrowed £1000 they added say £500 in interest at the beginning of which say £200 was for the last 2 years of the loan - so I'm making payments based on £1500 but now the loan is being settled they are only refunding say £100 not the £200 that they charged me so I'm £100 down.
And of course on the new loan the full interest is being rolled in again.
Hope that makes sense - I have some vague recollection of something called the rule of 78's??
What I'm saying is that I thing that the original amount I borrowed originally has had the full amount of interest for the full term of the loan added to it and I make payments on this basis.
What I think NR is suggesting is that I now borrow enough to clear the earlier loan (2 years early) but that the balance to clear the first loan allows a refund because it's being settled early BUT that it is not the full amount of interest that was added for the extra 2 years at the beginning of the loan?
So say I borrowed £1000 they added say £500 in interest at the beginning of which say £200 was for the last 2 years of the loan - so I'm making payments based on £1500 but now the loan is being settled they are only refunding say £100 not the £200 that they charged me so I'm £100 down.
And of course on the new loan the full interest is being rolled in again.
Hope that makes sense - I have some vague recollection of something called the rule of 78's??
wedg1e said:
Wedg1e is my understanding in my post above this one correct then?
More or less: they are charging you for the 'privilege'...
Cheers Wedg1e. At least I know the deal and as you say it does allow me to massage the monthly payment which is the important factor at the moment.
The whole question of when the interest is "added" and how much is added is defined in the agreement. Without knowing exactly what you signed it's difficult to say what rules will be used to calculate how much you have to pay to break early. You are basically looking at this from the worst case, but this may well be correct.
Does this happen now, i.e. take a 1000 loan, they stick on 200 interest, you start paying off 1200 of loan on day one? I.e if payments were 50 a month and you stopped after 2 months on the dot you'd owe them 1100?
Thought this wasn't allowed anymore and all interest was calculated daily or summat like that (he says not really thinking about it but waiting for more informed opinions)
Thought this wasn't allowed anymore and all interest was calculated daily or summat like that (he says not really thinking about it but waiting for more informed opinions)
Gassing Station | The Pie & Piston Archive | Top of Page | What's New | My Stuff