Bounce Back Loans were set up by the UK Government to support small businesses during the COVID-19 pandemic.
Although the applications for these loans may be closed, many borrowers may still be confused about the interest you pay back.
Continue reading this guide to find out more on Bounce Back Loan interest rates.
Is interest payable on Bounce Back Loans?
Yes, interest is payable on a Bounce Back Loan (BBL), except for the first year of a six-year loan, which is covered by the government.
After this first year, you are then charged an annual 2.5% fixed rate of interest, which is considerably cheaper than most loans.
How is Bounce Back Loan interest calculated?
No matter how much you borrow with your BBL, the interest rate will always be charged at an annual 2.5% fixed rate over a six year term.
For example, if you borrowed £25,000 over a 72 month term at the 2.5% fixed interest rate, the highest monthly repayments will be £468.75 per month.
This means that the total amount repayable is £26,588.54 after the 6 years are finished.
What are the interest rates on Bounce Back Loans?
All BBLs have the standard interest rate of 2.5%, no matter whether you have a loan amount of £2,000 or £50,000.
When will I start paying interest on my Bounce Back Loan?
In the first 12 months, you will have a repayment holiday in which the government will pay the interest during this time.
After this first year, you will then start paying the interest on your BBL. However, if you wish, you can repay a BBL early without any penalties and in many cases, you can make smaller overpayments to try and reduce the debt.
Can I pay interest only on my bounce back loan?
Yes, you can pay interest only on your BBL which will reduce your monthly repayments for six months – this is part of the Pay As You Grow scheme (PAYG).
This option is available up to three times during the terms of the BBL agreement.
For example, if you took a loan of £50,000, this would reduce your monthly repayments from £939.49 to around £106.16 for a six month period.
You will end up paying more interest overall, meaning the total amount repayable on a £50,000 loan will increase to £54,431.60 to £55,056.94 unless you choose to repay early.
You will have the choice to increase your loan term for an additional six months if you take this option, but your interest costs will increase.
If you choose this option to extend your loan by six months, you will be repaying your loan over a longer period of time.
Bounce Back Loan support
At The Insolvency Experts, our team of expert advisors are here to provide you with the help and advice you need on Bounce Back Loans during challenging financial times.
We will take the time to assess your situation and help you understand all the options open to you.
Contact us today to see how we can help you.