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Contractual Interest


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Contractual interest is the interest rate(s) set out in the contract between yourself and the bank. Normally this is what they'd charge you, but there is a strong argument that it can be applied recipricolly and you can use it to charge them in place of statutory 8% interest.

 

Compound interest is the term used to describe a specific method of calculating interest in which at set periods the amount owed is re-calculated to include accrued interest. For example, if you borrow £100 in January with a 2% monthly interest rate, in February you will owe £100 + £2 interest = £102. This figure then becomes the basis for the next interest calculation, ie you don't pay 2% of £100, you pay 2% of £102, or £2.04. Total now owed is £104.04, and the next month you pay 2% of this and so on. As you can imagine this mounts up quicker and quicker the longer it goes on. After a year you would owe £126.80, so you can see that rather than paying 2% interest as you would think (2% x 12 months = 24% = £24), you have actually paid £26.80, or 26.8%.

 

It gets very tricky working this out on each and every charge applied in some cases, so should you need it I have made a spreadsheet which does all the hard work for you which you can download via the link in my sig.

  • Haha 1

Mindzai & Lucid vs Lloyds TSB

 

Mindzai's Account - Partial settlement offer rejected

Joint Account - Partial settlement offer rejected

_________________________

Spreadsheet for compound contractual interest and statutory (s69) interest:

Download v1.9 [Tested with Excel 97-2007 and OpenOffice 2]

PLEASE NOTE: You should fully research contractual interest before you use that functionality of this spreadsheet. If in any doubt please use it to calculate 8% interest under s69 County Courts Act 1984.

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thank you for the rapid response and such a concise answer !!!

I must admit that now you have explained the contractual interest term for me it is a discussion me and my partner had many weeks ago. My point to her was I dont see why the interest chargable should be capped at 8% when on our car loan we have an APR of nearly 3 times that figure. Has anybody actually stated a higher rate of interest in their particulars of claim as far as you know ???

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Yes, me :D So far the bank have offered to settle but their sums are a bit off, they have only calculated at 8% but they will pay the full amount unless they want to see me in court. People have most certainly won cases with contractual interest involved (or rather, thay have got settlements including it) but you need to be sure you read up on it before you go ahead just incase it reaches a judge - you need to be able to justify why you claimed it.

Mindzai & Lucid vs Lloyds TSB

 

Mindzai's Account - Partial settlement offer rejected

Joint Account - Partial settlement offer rejected

_________________________

Spreadsheet for compound contractual interest and statutory (s69) interest:

Download v1.9 [Tested with Excel 97-2007 and OpenOffice 2]

PLEASE NOTE: You should fully research contractual interest before you use that functionality of this spreadsheet. If in any doubt please use it to calculate 8% interest under s69 County Courts Act 1984.

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Share on other sites
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