Getting My Head Round This.....

[Feebee_71]

I'm still trying to get my head around the situation of the maximum amount repayable on payday loans being the original loan plus one month's interest charge.

 

So, if someone borrowed £800 from a pdl and the added charge was £200, it would make the total repayable £1000. Over the next few months the person rolls the loan over and pays £200 charge/interest each time, they roll over a total of 5 times.

 

So it works out that, over the time of the loan, the payments work out as follows......

 

Day 1 - receives £800 in bank account, interest charge on loan £200

Month 1 - rolls loan over paying £200 interest/charge

Month 2 - rolls loan over again paying £200 interest/charge

Month 3 - rolls loan over for 3rd time and pays £200 interest/charge

Month 4 - rolls loan over once more (4th time) and pays £200 interest/charge

Month 5 - rolls loan over for final time and pays £200 interest/charge

Month 6 payment due £1000 to settle loan but person loses job and has no income. Pdl company take £400 from person's bank account leaving little over £150 in the account.

 

Total borrowed from pdl - £800

One month's interest/charge - £200

Total due back to pdl £1000

 

Over time of loan total paid to pdl in roll over intetest/charges £1000

Total taken by pdl from bank account £400

Total sum paid to pdl company to date £1400

 

PDL company add late payment charge of £12 to account. PDL company pass account to debt collection company who demand £612 to be paid to settle debt.

 

Has the person, through rolling debt over and paying £1000 back to pdl company, added to the additional £400 taken from the bank account, fulfilled their obligation to pdl company for the original loan?

 

Really interested in answers as will help clear my mind on what is probably a straightforward situation that my mind is over complicating!

 

Thanks,

 

Feebee_71

[Feebee_71]

Anyone got any comments on this?

 

Feebee_71

[nortel]

By my reckoning the loan you still owe £600.

Every time you roll over its effectively a new loan. If they have taken £400 already then the amount outstanding on the loan in month 5 is £600.

[CrappoMan]

By my reckoning the loan you still owe £600.

 

I agree, £600 still owed, plus the £12 late payment charge.

 

Each of the £200 interest/charge payments didn't pay anything towards the principal £800 originally borrowed, so £1000 (£800 principal + £200 interest) was still owed at Month 6.

 

As £400 was taken from bank account, that leaves £600 still owed.

 

In effect, £200 monthly interest on an £800 loan, that's 25% per month or 304% APR. Ouch!

[Feebee_71]

Thanks for the answers chaps,

 

What was confusing me was that, a number of times, I've read that all that could ever be claimed was the principle loan and one months interest, even if rolled over. I had previously asked for clarification on my own thread but that question was never answered.

 

Thanks again,

 

Feebee_71

[nortel]

Bear in mind this "what a judge in a county court would most likely award" it's not law.