Libor HELP!!

crobinson_3

Hi

I need some help in relation to LIBOR and the story is as follows:

My wife and i took out a loan for £18,200.00 in July 2006, this loan was secured against the house but it was the best option at the time, the APR was 10.4% variable and payments were managable, we used the money to get rid of credit cards, loans, overdrafts etc etc.

This is were I get stuck, the interest rate is variable and while interest rates were rising (early part of 08) the payments were increasing but now they have come down the payments are still at the same level.

After speaking to Nemo (Lender) they stated that they establish their interest rates from LIBOR and because they have not passed the interest rate savings on to them they can not pass them on to the customer, there explanation is that in 08 the interest rate was 5-6% via LIBOR and 2-3% 'cost of lending' this would make a total of 7-9%, now the interest rates have come down but the cost of lending has increased so now it is 2-3% interest with 5-6% cost of lending makeing a 7-9% total.

This all sounds a bit alien and odd to me but if you can help and explain 1) your being made a fool of SORT IT! or 2) no this is right, ride it out and pay the loan off!

Any help welcome!

C

magyar

It's hard to give a definitive answer. LIBOR (London Inter-bank Offered Rate) is the rate at which banks lend to each other, and at the moment they're still not really doing that.

If your contract simply says you get 'their standard variable rate' then that's what you get. It might seem wrong that they don't drop their rates, but they don't have to.

But you might be able to get a better loan now. Do you know what the early repayment terms are? If you would pay less in repayment fees than you would save elsewhere in interest rates, it might make sense to switch.

Rafter

Variable is just that: the lender can set any rate they like and it does not track a particular index or base rate.

Libor has fallen, but not as much as base rate because banks are still nervous about lending to each other.

I think your option 2 is the way to go or as magyar says try to get a better loan if your situation has improved..... watch for nasty repayment penalties from the likes of Nemo though.

Good luck

R.

Robert_Sterling_3

You are one of many victims of the credit crunch.

crobinson_3

Thank you for your help here, their main arguement is around the cost of lending between banks? do you know how or if i can get hold of this information?

Rafter

The BBA website should be able to give you a LIBOR history.

However, Nemo's exact borrowing costs would be confidential to them and not generally available. Based on the fact that most secured loans are now not so secured as a result of falling house prices, the cost of borrowing for the likes of Nemo probably haven't fallen in line with LIBOR or any other public rate.

Unless you have something in writing from them saying that their variable rate is linked to LIBOR, I think you might be wasting your time.

R.