Is this legal? Possible problems with loan interest.

Nick_Sellick

Hi,
This is a bit of a long one I'm afraid, but if anyone can get to the end and offer advice, I'd be eternally grateful.
My son trained to be a pilot. We didn't have the money to pay for the training, so the flight school agreed to lend us part of the fee. This was to be paid back at a rate of 5%, with payments commencing 4 months after his training was completed. The thinking at the time was that he would get a loan for that amount and hopefully get a better interest rate.
The prredicted finish date was Feb 2021 or thereabouts. With the pandemic that date was pushed further anbd further back and he eventually completed his training in March of this year. We don't know the exact date as he was never told!
We heard nothing from the flight school. Eventually he contacted them in September to ask how much he owed and when payment was due.
On september 27th we received an email saying:
 "With regard to the loan we gave you for training, we are now at the point where we need to start repayments so I would be grateful if you could please confirm how you would like to proceed?
The balance on your account is £41,500 and the letter regarding the loan is reattached for info. 
The sum involved is £41,500.00."
We agreed and said we would pay the balance in full on October 7th. This allowed time to put the finance in place.
At no point have we been told an official finish date for hius training. We have had no requests for payment and have not been advised that payment was due and or that interest was accruing.
Today we have had a revised bill including interest charged from february 25th. (This is definitely not 4 month after completeion.)
The interest amounts to £1614.82. I have no idea how this has been arrived at.
Is it legal for them to start charging interest without advising us that repayment was due? 
It all seems very unfair to me.
I'm trying to get a bit of knowledge before I try and argue our case.
Any advice extremely welcome.
Thanks
Nick

DullGreyGuy

When repayment starts and when interest starts are two independent things... in most cases interest will start as soon as the loan is given even if repayment is deferred, just look at student loans where repayment only commences once you are earning over £20k but interest is applied.

You really need to dig out the paperwork on the financing to understand what should be going on. 

Nick_Sellick

DullGreyGuy said:

When repayment starts and when interest starts are two independent things... in most cases interest will start as soon as the loan is given even if repayment is deferred, just look at student loans where repayment only commences once you are earning over £20k but interest is applied.

You really need to dig out the paperwork on the financing to understand what should be going on. 

The paperwork was very vague. No dates. 

Jami74

Nick_Sellick said:

This was to be paid back at a rate of 5%, with payments commencing 4 months after his training was completed. 

The sum involved is £41,500.00.

The interest amounts to £1614.82. I have no idea how this has been arrived at.

Is it legal for them to start charging interest without advising us that repayment was due? 

Is 5% the interest rate? If so, 5% interest on £41,500 is about £2075 a year. 

Did they specify that the loan would be interest free for a period of time and they would only start charging interest four months after after the course was complete? 

£1614.82 looks like interest accruing on £41,500 at a rate of 5% over a few months. It sounds like you think you should only pay interest from July as that would be about four months after the course ended. Was there no last training session or exam or certificate or anything to get an idea of when the course ended?

It depends on what the agreement says that you signed, and if there were any updates sent because of covid. But if you signed an agreement that said interest would start to be charged at a point in time if you had not paid it back before that time, then I don't think they're obliged by law to send you a reminder to pay. I'm not a legal person but if it was me I would be trying to find the original paperwork that states interest would only start to be charged four months after the course ends so that when you contact them, you can quote that part back to them, and also hopefully find out what end date to the training they have on their records.

Nick_Sellick

The agreement simply says the amount being borrowed, the interest rate and how many months after completion the payments should start. No mention of interest starting at a time other than when the first payment is made. This isn't stated, but I would have thought it was implied as no other date is given. 

DullGreyGuy

Nick_Sellick said:

The agreement simply says the amount being borrowed, the interest rate and how many months after completion the payments should start. No mention of interest starting at a time other than when the first payment is made. This isn't stated, but I would have thought it was implied as no other date is given. 

Why'd you think that? I'd certainly expect that the norm is that interest starts as soon as the loan is given... if interest is deferred then a big song & dance is made about it (see all the adverts for 0% credit cards etc)

Herzlos

When would you have been expected to pay for the course if they weren't providing credit? Because that's the point I think the average person would assume that interest started to accrue.

Clive_Woody

Nick_Sellick said:

The agreement simply says the amount being borrowed, the interest rate and how many months after completion the payments should start. No mention of interest starting at a time other than when the first payment is made. This isn't stated, but I would have thought it was implied as no other date is given. 

I think you need to separate interested being charged and repayment being started, as they are potentially unrelated.

Most likely interested was charged from the day that the loan started, with repayment not being due to start until X months after completing the training. Unless they specifically stated that no interest would be charged for the entire duration of training (plus X months) then I think you will find that interest has been accumulating all this time.

I suggest a phone call to the lenders to confirm. Assumptions will get you nowhere.