# I have no understanding of financial arithmetic and a loan company is using it against me, please help!

#### Jane84

##### New member
I want to make an early settlement of a loan I took out. When I asked the loan company in March 2019 what the settlement figure would be they said £1,188.50 but the early settlement figure in October 2018 was £1,184.75. I don't understand how the figure has gone up slightly despite making my monthly payments on time, total of £1359.36 in 6 months. The loan company told me they use a formula given by a financial authority (not sure I believe this and will follow up the legitimacy of the claim at a later date) and they shared an image of the formula. I don't understand anything it is saying. Can anyone please help?
 Initial loan amount​ £1,000.00 Duration of agreement​ 18 months Annual Percentage Rate of Charge (APR)​ 1055.40% Monthly repayment amount​ £226.56
I know the APR is extremely high, I was desperate and looks like I will regret it. I just don't understand why the early settlement figure remains high even though I am not even half way through the term of the agreement, shouldn't the discount for early repayment be greater? If anyone can help me to understand the formula they use to calculate the amount of rebate I would really appreciate it. I know its a huge ask. Thanks, Jane

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#### Denis

##### Senior Member
Here's an itemized statement of that loan if repaid as per contract:
Code:
MONTH PAYMENT INTEREST  BALANCE
0                     1000.00
1   -226.56   220.27   993.71
2   -226.56   218.88   986.03
3   -226.56   217.18   976.65
4   -226.56   215.12   965.21
5   -226.56   212.60   951.25
6   -226.56   209.53   934.22
7   -226.56   205.78   913.44
8   -226.56   201.20   888.08
9   -226.56   195.61   857.13
10   -226.56   188.80   819.37
11   -226.56   180.48   773.29 ***
12   -226.56   170.32   717.05
13   -226.56   157.94   648.43
14   -226.56   142.83   564.70
15   -226.56   124.38   462.52
16   -226.56   101.88   337.84
17   -226.56    74.40   185.68
18   -226.56    40.88      .00
The interest rate is ~22.0265% per month!

They gave you 1000; you would give them
226.56 * 18 = 4078.08 if repaid over the 18 months.
Very generous of you!

The "prepayment formula" they use is quite obscure;
as you say, it appears to be "on purpose".

Anyhow, as example, if you prepaid at end of
11th month, the amount would be 773.29 ***

Hope that helps you "bargain" with those shysters!!

#### Otis

##### Senior Member
A lot of countries use pounds, so I'm not sure where you are. In the United States, we have the Consumer Financial Protection Bureau (despite our president's attempts to get rid of it). Does your country have an agency, to help citizens with issues from predatory lenders?

#### Denis

##### Senior Member
I want to make an early settlement of a loan I took out.
When I asked the loan company in March 2019 what the settlement figure would be
they said £1,188.50 but the early settlement figure in October 2018 was £1,184.75.
I don't understand how the figure has gone up slightly despite making my
monthly payments on time, total of £1359.36 in 6 months.
This financial saga is somewhat confusing...
Does the above mean:
-you obtained the 1000 loan at end of Aug/18
-you made 6 payments since: Sep/18, Oct/18, Nov/18, Dec/18, Jan/19, Feb/19
-in early Mar/19 (a few days ago!), they wanted 1188.50 as settlement in full

IS THAT CORRECT?

#### jonah2.0

##### Junior Member
Beer soaked comment follows.
Early payment penalty ?

#### Jane84

##### New member
Here's an itemized statement of that loan if repaid as per contract:
Code:
MONTH PAYMENT INTEREST  BALANCE
0                     1000.00
1   -226.56   220.27   993.71
2   -226.56   218.88   986.03
3   -226.56   217.18   976.65
4   -226.56   215.12   965.21
5   -226.56   212.60   951.25
6   -226.56   209.53   934.22
7   -226.56   205.78   913.44
8   -226.56   201.20   888.08
9   -226.56   195.61   857.13
10   -226.56   188.80   819.37
11   -226.56   180.48   773.29 ***
12   -226.56   170.32   717.05
13   -226.56   157.94   648.43
14   -226.56   142.83   564.70
15   -226.56   124.38   462.52
16   -226.56   101.88   337.84
17   -226.56    74.40   185.68
18   -226.56    40.88      .00
The interest rate is ~22.0265% per month!

They gave you 1000; you would give them
226.56 * 18 = 4078.08 if repaid over the 18 months.
Very generous of you!

The "prepayment formula" they use is quite obscure;
as you say, it appears to be "on purpose".

Anyhow, as example, if you prepaid at end of
11th month, the amount would be 773.29 ***

Hope that helps you "bargain" with those shysters!!
Thank you for your response. I'm still unsure how they calculate the settlement figure of £1,188.50 if repaying the loan in full at end of 7th month The total loan cost will be £2,547.86, made up of £1,585.92 in repayments plus the £1,188.50 settlement figure. I think I will revert to them and say the formula does not make sense and ask them to provide clarification which they must. Thank you again

#### Jane84

##### New member
This financial saga is somewhat confusing...
Does the above mean:
-you obtained the 1000 loan at end of Aug/18
-you made 6 payments since: Sep/18, Oct/18, Nov/18, Dec/18, Jan/19, Feb/19
-in early Mar/19 (a few days ago!), they wanted 1188.50 as settlement in full

IS THAT CORRECT?

Yes that is all correct and unbelievable, right? Does their formula explain how they've calculated it?

#### Jane84

##### New member
Beer soaked comment follows.
Early payment penalty ?
They haven't referred to it as such, only that the settlement figure is calculated by using the formula given by a financial authority

#### Jane84

##### New member
A lot of countries use pounds, so I'm not sure where you are. In the United States, we have the Consumer Financial Protection Bureau (despite our president's attempts to get rid of it). Does your country have an agency, to help citizens with issues from predatory lenders?

I'm in the UK and yes we have the Financial Ombudsman who I will be contacting about this.

#### JeffM

##### Elite Member
First of all, in the U.S. as a longstanding matter of state law inherited from English common law, that rate of interest would be illegal as usorious. The penalties for usury are often quite punitive and may run to the benefit of the debtor. In economies with very high rates of inflation, however, such interest rates are quite common: if inflation is running at 20% a month a monthly interest rate of 22% would be very modest. You need to check on the laws concerning usury, early payoff penalties, and predatory lending generally in your jurisdiction.

Second, the extract that you gave does not appear to be from a contract for a straight loan at all. There appears to be provision for additional periodic fixed advances. Based on the very linited context to be gleaned from that document, it does not appear similar to any type of loan or line of crediit common in the US. You need help from someone who can read the entire contract and has experience with the financial practices of your country.

#### Jomo

##### Elite Member
@ Denis.
Is it ever possible for the amount you owe to be more than the original loan? If that is true, then you will never pay off the loan!

#### Denis

##### Senior Member
@ Denis.
Is it ever possible for the amount you owe to be more than the original loan?
If that is true, then you will never pay off the loan!
However, loan will never be paid off if the 1st month's interest >= contracted payment

#### tkhunny

##### Moderator
Staff member
I want to make an early settlement of a loan I took out. When I asked the loan company in March 2019 what the settlement figure would be they said £1,188.50 but the early settlement figure in October 2018 was £1,184.75. I don't understand how the figure has gone up slightly despite making my monthly payments on time, total of £1359.36 in 6 months. The loan company told me they use a formula given by a financial authority (not sure I believe this and will follow up the legitimacy of the claim at a later date) and they shared an image of the formula. I don't understand anything it is saying. Can anyone please help?
 Initial loan amount​ £1,000.00 Duration of agreement​ 18 months Annual Percentage Rate of Charge (APR)​ 1055.40% Monthly repayment amount​ £226.56
I know the APR is extremely high, I was desperate and looks like I will regret it. I just don't understand why the early settlement figure remains high even though I am not even half way through the term of the agreement, shouldn't the discount for early repayment be greater? If anyone can help me to understand the formula they use to calculate the amount of rebate I would really appreciate it. I know its a huge ask. Thanks, Jane
VERY FUZZY disclosures.

"Percentage Rate of Charge"? What does that mean? "of Charge" is what piece of the loan? We don't know how high the interest rate is unless we know what this mean.

What is a "credit advance"? Is that just the one-time loan value at the beginning of the loan?

What is "repayment of credit"? Is that just the principal portion of the payments? If so, we need to know how these portions are calculated. It isn't usually obvious. It would not be surprising to see more interest than expected up front. q.v. Rule of 78's.

So far, it appears your creditor is creating a smoke screen, rather than explaining. Keep asking. But, keep paying while you're doing that.

#### Jomo

##### Elite Member
However, loan will never be paid off if the 1st month's interest >= contracted payment
How can you not understand what I am saying? You always say that!
You borrow some money and you make your monthly payments payments. Eventually you will owe nothing. I feel that at no point will you owe more than you borrowed (after your monthly payment is made).
You disagreed with me before on this, but here goes again.
You borrow $1,000 at say 10% per month and the payments are$200/month
After 0 month you owe $1000 After 1st month you owe$1000 + $100 -$200 = $900 After 2nd month you owe$900 + $90 -$200 = $790 After 3rd month you owe$790 + $79 -$200 = \$669
....
You get what I am saying? You never owe more that you borrow--it is ALWAYS going down.
The OP owes more then was borrowed.This can not be true!

#### Jomo

##### Elite Member
However, loan will never be paid off if the 1st month's interest >= contracted payment
YES!! And that is the only way for a borrower to owe more than was borrowed (if payments are made on time)

#### Denis

##### Senior Member
Have a good day Sir Jomo.