Loan lament
Question
I borrowed £15,000 to pay back over 10 years about a year and a half ago and I'm paying over £400 back every month. I recently got a statement from them because I wanted to know how much I still owed them and I was shocked to find that if I wanted to pay off the loan the current settlement figure is £4000 more than the original £15,000. This is after paying so much every month.
The interest on the loan is nearly 30% but does this mean I'll never pay the loan back? Is there anything I can do? I feel quite desperate about this because I didn't realise I would get myself into deeper and deeper debt.
Answer
When you take out a loan of this kind, the loan company will often 'front load' the loan. This means that during the early years of the loan you are paying large amounts of interest and very, very little of the actual capital.
In your case, the total amount you will have repaid at the end of the loan is likely to be around £48,000, of which approximately £33,000 will have been interest. The loan company will therefore try and get as much of this interest as possible during the early years so when you ask for a settlement figure during this period you will find you owe more than you borrowed. This may not seem fair but, as long as they disclosed all the rates and charges when you signed up, it is perfectly legal.
There's very little you can do with this loan as you entered into the contract and were aware of the repayments and the total cost of the loan. But if you're unhappy with this situation you could consider taking out another loan with a lower interest rate to pay this one off. Providing you have a good credit history you should be able to find a loan for a lower interest rate. This would allow you a lower repayment rate or a shorter term. It is possible that whilst you negotiate a new loan the settlement figure you've been quote could continue rise, so you it might be a good idea to find out how long the present settlement figure will last and borrow to cover any new figure.
If you'd like more information about the options open to you, you can call National Debtline on 0808 808 4000 or go to your local Citizens Advice Bureau (CAB) to talk the situation through with an advisor.
Whatever you choose to do, it's important you don't stop making the payments as this could cause you problems if you need to borrow in the future.
Updated: 30/06/2008
Question answered by CAB
