Front Loaded Loans?

[Mojooo]

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?

[Mojooo]

Well TBH the interest was lower than what i could get elsewhere and I am unlikely t be able to pay it off early anyway - so i imagine by the end i will have paid the interest i signed up for

still a bit harsh on those that can pay early?

[Ungarsee]

Google the 'rule of 78'. Should explain all

[Office_Monkey]

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.

[Mojooo]

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.......

[mcflurry]

If you pay it off there should be a partial rebate of the £2000 interest