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Rakhi Vasavada
Rakhi Vasavada, Financial Advisor
Category: Finance
Satisfied Customers: 4543
Experience:  Attorney and Financial Expert. Have specialization in Financial Laws.Practice experience of over 13 years
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Im looking into retail loans in the UK and I have a couple

Resolved Question:

Im looking into retail loans in the UK and I have a couple of questions.
Please note these questions apply to Fixed interest Fixed Term fully amortised retail loans.
1) Are loan origination fees included as part of the principle? i.e. is interest applied to them? Or are the fees simply amortised and split across all payments on top of the normal monthly payment
2) In the UK to lenders typically apply Negative Amortisation or Simple Interest Amortisation to late repayments?
3) When dealing with late repayments what should the order of repayment priority be? Interest, Late Fees, Principal
Thanks for your help!
Submitted: 2 years ago.
Category: Finance
Expert:  Rakhi Vasavada replied 2 years ago.
Dear Friend,

Hello and welcome. Thank you for providing an opportunity to assist you.

Let me come straight to your questions and answer in order you asked them.

1. No interest is applied to them. They are simply amortised over the life / tenure of the loan.

2. Usually, there is no Negative Amortisation. Simple Interest accrues on late payments.

3. While dealing with repayments, morer emphasis should be laid on Principal amount first. After this, late fees and Interest would follow.

I am sure this would help.

You may please leave a positive rating if this helps as this is the only way we are compensated for assisting you. Alternatively, you may revert back with a reply if you need further assistance or if I have missed out on any aspect of your question.

Warm Regards
Customer: replied 2 years ago.

Thanks for the reply. I would like some clarification though.

on 1) In the event that the monthly repayment can be calculated as

PMT = Principal * rate * ((1 + rate) ^ term) / (((1 + rate) ^ term) - 1)

If Principal = 10000

rate = 0.1/12

term = 24

then PMT = 461.45

How exactly would a fee of say 100 be amortised across the schedule?

2. OK great that helps

3. Thanks for the info

Thank you for helping

Expert:  Rakhi Vasavada replied 2 years ago.
Dear Friend,

Hello and welcome. Thank you for your reply.

I believe the points 2 and 3 helped you and you do not need any further clarification on that as such.

Coming to your further query, the fee of 100 would be spread equally over 24 months, adding approximately 4.16 to the monthly payments.

I am sure this would help.

You may please leave a positive rating if this helps as this is the only way we are compensated for assisting you. Alternatively, you may revert back with a reply if you need further assistance or if I have missed out on any aspect of your question.

Warm Regards
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