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Bank trying to hide their mistake - Business loan
SUMMARY
Apologies for the long post, a quick summary is that the bank havent changed the loan repayment figure when base rates have changed (their error), they are now trying to hide from this error and sweep it up by moving to a new loan account but the payments or the term then increases over and above the previous agreement hence we pay more. I have had to deduce this scenario because they have been vague about what the mistake was. What success do you think I will have getting the bank to admit to this and then recompense for the loss ?
DETAIL
My father in law has a business loan with NatWest set up 4 years ago. It is base rate + 2%. This gave a repayment figure of say £1k month for capital & Interest when started.
The terms of the loan state this will be recalculated whenever the base rate changes, over the last 4 years the base rate has changed several times, sometimes for the better, more often for the worse.
The payment has never changed. Out of the blue the FIL got a call from the business banking contact, bit of banter and chit chat, and then oh, about that loan, I think we made a mistake when we set it up, we need to move it to a new loan (no set up charges), I'll send the paper work accross can you sign it and we will sort it out.
FIL drilled into him the best he could and they wanted to change the repayment amount, to quite a higher figure, which they couldnt afford so instead he has agreed to set the payment the same and extend the term.
At no point has the bank explained what the error was, so he asked me and after a bit of thinking realised the error.
They had not recalculated the repayment each base rate change, hence they have been left underpaying and hence paying more interest.
I am trying to calculate how much they have been disadvantaged by, I think I need to backtrack to each base rate change, at that point calculate the balance outstanding, calc the interest forward to agreed redemption date and calc a new repayment amount. Do this over the four years. There is then a diff between what they have paid and what they should have paid - say £5k. The diff in the amount owing between now, and this scenario taking into account the extra paid is then I think the extra interest accrued to date.
To get to this I will have to do a few formulas, of which I am quite competent but the interest is calculated daily and added to the account every 3 months, hence it doesnt compound daily - anyone point me to the right formula for this , not sure how to do it given the base rate changes on say 5th jan. The way I am planning to do it is to have every day on a seperate row in excel which is not very quick.
Can anyone concur with my logic that I am going about it the right way to calculate what I think is the value of the bak error.
Also - any opinion on whether we should be able to make a claim from the bank for this amount. The way I see it, they agreed to a loan agreement which they have broken by not reviewing the payments at base rate changes. FIL never picked it up because he is a builder and not very in touch with the figures. I think the bank have noticed because it looks like they have underpayed by such an amount that it looks very unlikely to pay off by the agreed date, and I wonder if the guy responsible is trying to cover it up quickly and sweep it under the carpet without having to let anyone else know about the mistake. I think if I can calc the amount we are disadvantaged by we could ask for this, either by agreeing to pay in the capital we would have paid had they changed the payments, and them deducting the excess interest accrued in error.
I think once we have the figure we will have to meet with this guy, but I guess we should ask him to put in writing why we need a new loan agreement signing.
Any advice if anyone has been in a similar situation before would be appreciated. These business bankers claim they support small businesses but this seems a bit of a carve up to me.
Thanks,
Stuart.
Apologies for the long post, a quick summary is that the bank havent changed the loan repayment figure when base rates have changed (their error), they are now trying to hide from this error and sweep it up by moving to a new loan account but the payments or the term then increases over and above the previous agreement hence we pay more. I have had to deduce this scenario because they have been vague about what the mistake was. What success do you think I will have getting the bank to admit to this and then recompense for the loss ?
DETAIL
My father in law has a business loan with NatWest set up 4 years ago. It is base rate + 2%. This gave a repayment figure of say £1k month for capital & Interest when started.
The terms of the loan state this will be recalculated whenever the base rate changes, over the last 4 years the base rate has changed several times, sometimes for the better, more often for the worse.
The payment has never changed. Out of the blue the FIL got a call from the business banking contact, bit of banter and chit chat, and then oh, about that loan, I think we made a mistake when we set it up, we need to move it to a new loan (no set up charges), I'll send the paper work accross can you sign it and we will sort it out.
FIL drilled into him the best he could and they wanted to change the repayment amount, to quite a higher figure, which they couldnt afford so instead he has agreed to set the payment the same and extend the term.
At no point has the bank explained what the error was, so he asked me and after a bit of thinking realised the error.
They had not recalculated the repayment each base rate change, hence they have been left underpaying and hence paying more interest.
I am trying to calculate how much they have been disadvantaged by, I think I need to backtrack to each base rate change, at that point calculate the balance outstanding, calc the interest forward to agreed redemption date and calc a new repayment amount. Do this over the four years. There is then a diff between what they have paid and what they should have paid - say £5k. The diff in the amount owing between now, and this scenario taking into account the extra paid is then I think the extra interest accrued to date.
To get to this I will have to do a few formulas, of which I am quite competent but the interest is calculated daily and added to the account every 3 months, hence it doesnt compound daily - anyone point me to the right formula for this , not sure how to do it given the base rate changes on say 5th jan. The way I am planning to do it is to have every day on a seperate row in excel which is not very quick.
Can anyone concur with my logic that I am going about it the right way to calculate what I think is the value of the bak error.
Also - any opinion on whether we should be able to make a claim from the bank for this amount. The way I see it, they agreed to a loan agreement which they have broken by not reviewing the payments at base rate changes. FIL never picked it up because he is a builder and not very in touch with the figures. I think the bank have noticed because it looks like they have underpayed by such an amount that it looks very unlikely to pay off by the agreed date, and I wonder if the guy responsible is trying to cover it up quickly and sweep it under the carpet without having to let anyone else know about the mistake. I think if I can calc the amount we are disadvantaged by we could ask for this, either by agreeing to pay in the capital we would have paid had they changed the payments, and them deducting the excess interest accrued in error.
I think once we have the figure we will have to meet with this guy, but I guess we should ask him to put in writing why we need a new loan agreement signing.
Any advice if anyone has been in a similar situation before would be appreciated. These business bankers claim they support small businesses but this seems a bit of a carve up to me.
Thanks,
Stuart.
0
Comments
-
Take the outstanding amount and multiply by the base rate rises, over the time of the balance.
The monthly to annual calculation is 1+(rate/100)^12 -10
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