Whats the difference between compound contractual interest and contractaul interest?

Sexyeyes83 · 30th December 2006, 00:00

Just a quick question,

Can someone advise me what the difference is between the two please.

Thanks

bill-k · 30th December 2006, 00:16

Hi - there is no difference.

There are two methods of calculating interest which we use here. One is Simple interest, the other is Compound interest - and these are just methods of calculating it.

There are two types of interest which we use here. One is Statutory interest, the other is Contractual interest.

Statutory interest is always calculated as Simple interest.

Contractual interest is (or should be) always calculated as compound interest.

So Contractual interest is, by its' very nature, Compound interest.

HTH

Glenn UK · 30th December 2006, 00:24

Or to put it another way, there is no such thing as compound contractual interest.

Rooster-UK · 30th December 2006, 00:37

As I remember it from school (Which was a very,very long time ago)

Simple interest.....
If, for example, you wanted to work out the interest of £100 over 2years at 5%, then the interest would be £100 x 5% x 2 which equals £10.

Compound interest using the same figures.....
1st year (£100 + 5% = £105)
2nd year (£105 + 5% = £110.25) Minus the £100 gives intrerest of £10.25.

So basically simple interest is calculated on the original sum for the entire time.
Compound interest is calculated seperately for each year using the total (principal+interest) from the previous year.
In other words interest earned on the previous year's interest. etc.

Now that is about as clear as thick Lincoln pea soup.
If you understood it...... could you explain it to me, please.

Regards, Rooster.

Glenn UK · 30th December 2006, 21:15

Quote:

Originally Posted by Rooster-UK

In other words interest earned on the previous year's interest. etc.

Or any other period specified, so for bank accounts its calculated daily i believe.

Glenn

bill-k · 30th December 2006, 21:40

Quote:

Originally Posted by Glenn UK

Or any other period specified, so for bank accounts its calculated daily i believe.

Glenn

That's right, Glenn. So Rooster's method is correct for interest compounded annually, but needs tweaking for compounded daily.

Josamolly · 5th January 2007, 23:11

oh right , well thats cleared that up then!!!!...LOL LOL

MilkTrayMan · 6th January 2007, 04:12

Hi ALL,

Quote:

Originally Posted by bill-k

There are two types of interest which we use here. One is Statutory interest, the other is Contractual interest.

Statutory interest is always calculated as Simple interest.

Contractual interest is (or should be) always calculated as compound interest...

Just to chuck a brick into the pond...

Whilst the above MAY be true.
(...and certainly is in the case of Banks & Credit Card Companies).
It would depend on the ACTUAL wording of any individual Contract and the stated terms of the burden of the Interest and it's Charge thereof contained within.

Whilst the majority of the CAG Membership may only be concerned about the Re-Claiming of unlawful Bank Charges etc.
...There are also those out there who could perhaps use some help with THEIR type of Interest?

A common type being the FLAT % RATE INTEREST, so often used in Car Financing!

Any takers for an explanation/spreadsheet etc???...lol...

bill-k · 6th January 2007, 05:20

Quote:

Originally Posted by MilkTrayMan

Hi ALL,

Just to chuck a brick into the pond...

Whilst the above MAY be true.
(...and certainly is in the case of Banks & Credit Card Companies).
It would depend on the ACTUAL wording of any individual Contract and the stated terms of the burden of the Interest and it's Charge thereof contained within.

Whilst the majority of the CAG Membership may only be concerned about the Re-Claiming of unlawful Bank Charges etc.
...There are also those out there who could perhaps use some help with THEIR type of Interest?

A common type being the FLAT % RATE INTEREST, so often used in Car Financing!

Any takers for an explanation/spreadsheet etc???...lol...

Dunno about that mate - this is Bank Action Group. As I always say, if you need satisfaction from a faulty vacuum cleaner - you won't get it here !!!

Suckers & blowers take a hike.

Flat % rate interest is surely just simple interest with a cheap car salesman's flasho sticker on it. I reckon that's about as far as yer average car salesman could throw it !! Just another label for the same damn thing, methinks.

I'll take a look around, though, if you really can't fathom it, mate.

...but I ain't gonna be sucked in on that one !!!

MilkTrayMan · 6th January 2007, 07:04

Morning bill-k!

Quote:

Originally Posted by bill-k

Dunno about that mate - this is Bank Action Group. As I always say, if you need satisfaction from a faulty vacuum cleaner - you won't get it here !!!

Am sorry to press U on this issue

But...

In the generic example of other types of Interest that I gave U, I mentioned Car Financing.
A popular company that does a lot of this is Welcome Finance.
It is listed on the CAG website, within the Bank Action Group section, in Other Institutions:

http://www.consumeractiongroup.co.uk...e-finance.html

Quote:

Originally Posted by bill-k

Flat % rate interest is surely just simple interest with a cheap car salesman's flasho sticker on it. I reckon that's about as far as yer average car salesman could throw it !! Just another label for the same damn thing, methinks.

If U was to look a little bit deeper into the aforementioned type of Interest bill-k...
U may find it extremely repressive and mis-leadingly underhanded (IMHO).
Especially when unlawful Charges have been applied as well.

FWIW...
Welcome Finance currently advertise rates of Typically 21.1%APR for SECURED Loans (...under conventionally worked out Contractual Interest).
...I wouldn't dare have a nightmare about what their UNSECURED % Rate is!!!
NOR what their Flat % Rate Interest would be either!!!

Have the exhorbitantly (IMHO) high figures not whetted any Spreadies appetites???

bill-k · 6th January 2007, 07:30

Well, I must consider myself duly enlightened in that respect, then, MTM !! Blinkers off, spurs on, then !!

Having not bought a car from these (apparent) rodeo fans, I haven't had the pleasure of a square-dance with them !!

Taking out a secured loan for a car seems like a public declaration of insanity to me TBH !! Let me get this right - one has either managed to secure a mortgage on one's property or one owns the deeds thereto. Then one goes down the road to Mr. Flasho Dealership and pledges the lot on a car ? !!

These people need help, indeed. But I don't think a spreadsheet is going to be a lot of use, do you ?? This is clearly a job for trained counsellors, not the likes of me !!

:o

chezt · 16th July 2007, 18:59

PMSL Bill ... only just spotted this one ... just luv your replies sometimes!

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