Taken HSBC loan today - Info required

[stush]

I took a £7000 personal loan over 60 months today and the loan has drawn drown..

 

I only plan to have the loan for a month (max 3 months).

 

The interest is front loaded - from what i have been told I can repay the loan at any time and the interest i'd pay is for the period i've had the loan + 2 months...does anybody know if this is the case or would this work out an expensive option as the loan is front loaded??

[ims21]

Hi

 

On a loan yoou pay more in interest in the early months and less in the latr months purley beause the capital balance is higher in the early months.

 

Quick example £10k loan

 

Month 1, 10k outstanding...suppose interest at 1.5%pm. Month 1 interest = £150 so loan plus interest = £10,150. Month 1 payment is, say £200. £10,150 less £200 = £9,950. Month 2 interest is £9,950 at 1.5% = £149.25. Balance = £9,950 + 149.25 = 10,099.25. Month 2 Payment = £200, balance now £10,099.25 - 200 = £9,899.25.

 

And so on

 

ims

[stush]

ok i understand (i think!) - so if i paid back the loan after 1 month for example, it'd cost me 1 months interest + 2 months for clearing early?

[ims21]

You got it

 

ims

[stush]

Thanks - I thought as it was front loaded it wouldn't work like that as you pay interest at the start of the loan? Therefore when you get to a certain point in the loan, you'd have paid all the interest off before the end of the term..?

[ims21]

Hi

 

I see what you mean but it doesn't work like that unfortunately.

 

Front Loaded simply means that you pay more in interest in the early months than in the later months as described above.

 

Simply put, in the early months more of your monthly payment is going to interest rather than against the capital balance.

 

ims