My mom got a loan a while back from an "undisclosed" company, but they charge interest before principal, right

Question

Alright, here is what is going on. My mom has had a loan from an "undisclosed" lending company for almost 10 years. She should've had it paid off by now BUT everytime she pays them, they take out more interest then principal. For example: her last bill from them was $205... $200 for interest and $5 for principal. As much as this pisses me off cause it doesn't sound right... is there a law or something that should be preventing this or whatever?

Something doesn't sound right, I always thought it was principal BEFORE interest. Meaning they should be taking out prinicipal and then 25% interest out of each payment.

Somebody please help me.

Answer 1

That is standard practice. And, really the only way it makes sense to pay back a loan.

Consider this... You have a loan for $1000 and a %12 interest rate. You get a bill which says your loan has accrued $10 in interest charges in the last month. So, your total loan is now $1010. If you pay a $20 payment, your total on the loan will be $990 regardless of if they pay the interest first or the principal, because any unpaid interest will be applied to the principal.

This is why most people believe you should over pay your loan payments. Never pay the minimum, because they will design those payments to milk you for as much money as possible. A loaner company's worst nightmare is someone who pays off the loan quickly. Even an extra $10 will add up because it will apply directly to the Principal and eventually drive down the amount you are paying in interest..

Answer 2

Most lenders will take out interest 1st then the loan. U need to understand that they are there to make money, they want u to keep paying interest only, so minimum required payment is usually just above the interest amount, usually interest + 1 to 2% of principal. there may be specific law in state u live about minimum required payment, contact local state attorney's office.

the best way to come out is call them and negotiate interest rate, then pay interest plus at least 5 to 15% loan amount, you should be out of this in few months.
good luck