Financial Ombudsman Calculations

Silvershine

This content is copied from the FOS website:
where the consumer’s PPI policy and loan had run their full term before the business calculated the compensation

what we know

you took out a loan of £3,000 over 3 years;
we added the cost of your PPI premium to your loan. That was £450, so your total loan was for £3,450;
you paid monthly payments of £110 per month for 3 years until your loan was repaid – a total of £3,960; and
your loan ended 2 years ago.
what we have calculated
if you had instead taken out your loan without PPI you would have paid monthly payments of £95 per month for 3 years – a total of £3,420.
what we will do
We will pay you the difference between the monthly payments you paid (£110 per month) and what they would have been without the PPI policy (£95 per month), which is £15 per month (or £540 in total). We will also add interest at 8% per year simple to each overpayment from the date it was paid until the date of settlement, which in this case comes to an additional £120.
The total we will pay you is therefore £540 plus interest of £120.

My question is that I understand it all up to the point of adding 8% simple to each overpayment but no matter how/what I do cannot arrive at £120 quoted. Maybe I'm being thick - I don't know. Can anyone else work it out & if so please could you tell me as it's driving me crazy!

Nearlyold

Think you will get pretty close like this

£15 x 4 yrs 11months @ 8% simple pa, plus £15 x 4years 10 months @ 8% simple pa plus, £15 x 4years 9 months @ 8% simple pa etc. etc. finishing with plus £15 x 2 years @ 8% simple pa

safestored4

You can't apply the 8% simple interest to the total amount. As you paid PPI on a monthly basis the 8% will also be calculated on a month by month basis. For example, for the PPI you paid in the first month of the 3 year loan you will receive a full 8% interest. For the last month where you only paid PPI for one month you will only receive one thirty sixth of this.

This is only fair, you can't expect to receive 8% gross interest on something you only paid for a month.

Silvershine

Thank you Safestored4. I have formulated (in a spreadsheet):
36 months x £15 (540.00) x 8 divided by 100 (8%) =£43.20
35 months x £15 (540.00) x 8 divided by 100 (8%) =£42.00
34 months x £15 (540.00) x 8 divided by 100 (8%) =£40.80
Etc until month one = £1.20
Total £799.20
Followed by a further 24 months - date of settlement (£28.80 until month one £1.20)
Total £360.00
Total 8% simple £1159.20
This is £1039.20 MORE than the £120 calculated in the FOS Example
I'm still going mad!!!

Silvershine

Thank you Nearlyold. (same response as to safestored4)
I have formulated (in a spreadsheet):
36 months x £15 (540.00) x 8 divided by 100 (8%) =£43.20
35 months x £15 (540.00) x 8 divided by 100 (8%) =£42.00
34 months x £15 (540.00) x 8 divided by 100 (8%) =£40.80
Etc until month one = £1.20
Total £799.20
Followed by a further 24 months - which is the date of settlement (£28.80 until month one £1.20)
Total £360.00
Total 8% simple £1159.20
This is £1039.20 MORE than the £120 calculated in the FOS Example
I'm still going mad!!! - what am I doing wrong???

Nearlyold

Its one lot of £15 for 36 months @ 8% pa =£3.60 NOT 36 lots of £15
Then £15 for 35 months @ 8% pa = £3.50

You only paid £15 each month so for the first £15 you paid you get 36 months interest then for the next £15 you paid you get 35 months interest etc

Silvershine

Nearlyold wrote: »

Its one lot of £15 for 36 months @ 8% pa =£3.60 NOT 36 lots of £15
Then £15 for 35 months @ 8% pa = £3.50

You only paid £15 each month so for the first £15 you paid you get 36 months interest then for the next £15 you paid you get 35 months interest etc

I am really getting frustrated (nearly crying out of frustration) as I cannot seem to comprehend your reply nor can I figure out how you arrive at £3.50 - so for the thicko(!) here is it possible for you to tell me exactly how you arrived at £3.50

i.e.t £15 times 36 (£540) then times 8% = £43.20
or
£15 times 8% = £1.20 times 36 = £43.20
or
36 times 8% = £2.88 times £15 = is still £43.20

When you state:
You only paid £15 each month so for the first £15 you paid you get 36 months interest then for the next £15 you paid you get 35 months interest etc

The 1st £15 you get 36 months interest - interest is 8% so what is it 8% of?

I just cannot get my head 'round this - HELLPPP!!!

Nearlyold

Its 8% PER ANNUM NOT PER MONTH so £15 at 8% per annum x 36 months you get £15 x 8% = £1.20 x 3 =£3.60 ( this is for 36 months interest - to calculate 35 months interest divide £3.60 by 36 and multiply by 35 = 3.50)

Silvershine

Hallelujah - Thank you soooo much - I finally understand. It's one of those things that you can't see whats staring you in the face, I can (I think) finally work out what the bank owe me for a 5 year loan (PPI of 1515.11) paid up 25 years ago!! (it's only taken over 2 years!:T:o:D
I will post the final results in the succes thread

Silvershine

I'm really sorry (again) but I'm stuck again!! How do you calculate the 8% simple per year for the two years since the loan was fully paid up and settlement. Using your formula I have worked out the 3 year loan period (which totals £66.60).
As no monthly amount of £15 was paid after the initial 3yr loan how is the following 2 yrs worked out?

Nearlyold

£540 x 8% x 2 years = £86.40?