Hi, i am taking a loan out through Freedom Finance, they said this loan i can pay back amounts at any time which i was happy with.

I have the form and it says

Total amount of credit to the customer - £11000, 120 payments of 191.20, 18.4 %APR

Then is says charges : Interset £10543, Broker Fee £ 660, Costs 750, Total £11944, Annual Rate of 13.80%

I was happy to pay this over 10 years and hope to pay a lump sum when finances were better and pay it off sooner, but this charges bit has confused me, say in 3 years i pay off £5000, does this pay 5000 off the amount i borrowed or the amount i borrowed + the charges, ie do i still pay them 11000+11944 no matter what?

Any advice would be great!

Thanks in advance

Look for a section in your agreement that details how your interest is calculated.

The best is for it to be calculated "daily" - so the day after you make any overpayment the reduced balance is taken into consideration when applying interest from that point forwards.

"Monthly" and "Annual" interest calculations are also quite common and if you have these you'll want to time your overpayment to be around a week before the next calculation (otherwise you'd be better off keeping the overpayment in your savings account and earning interest off it yourself rather than overpaying your loan but not seeing any immediate drop in interest payments).

The worst would be for there to be no interest calculations at all except one when you set the loan up ("this would be your 11000 + 11944 no matter what" scenario). I've never encountered this and would certainly never consider signing up to such terms.

Thanks for the reply

One section says : "Interest will be charged on the daily balance of any unpaid credit, any upaid part of the Broker fee, any unpaid part of the Application Assessment & Completion Costs and any unpaid interest and charges previously debited, and it will be debited to the cutomers account at montly intervals."

On the back it says

"The rate of interest will be charged on a day to day basis on the outstanding balance and will be debited to the customers account at montly intervals on a date to be notified to the customer in writing. Payments made by the customer may be credited first to capital or interest ooutstanding under this agreement at the discretion of the lender"

Hmm makes no sense to me but dont like the sound of the last bit?

It does sound like they calculate interest daily which is very good for you if you are planning to make overpayments.

The last sentance is normal on almost any credit agreement and basically frees the lender up to credit payments against the cheapest parts of the loan meaning you don't pay off the most expensive parts until the end, meaning overall you pay more interest. Not a lot you can do about that, and as I say this is very common.

So if I am correct (hard to be 100% without reading the entire contract) then the 11000 + 11944 scenario is the most you will ever pay back on this agreement. If you do make overpayments then you will pay less interest.