One Stop Money Shop - paying it off early!

Brassneck28

I recently found out that my wife had taken out a £1000 loan with the One Stop Money Shop over 12 months without my knowledge. When I saw the direct debit leaving our joint account, I confronted her and found out she had agreed to an interest rate of nearly 300%! So I offered to pay the loan off in full, thinking that as she had only made two monthly payments the interest charged wouldn’t amount to much. However, it amounted to £346! I asked for a statement and they sent the info below. Is this right?

TrickyDicky101

If that number you've quoted above in the image is really the interest rate (Rate = 263.49%) then that means that that at the outset the interest being charged on the full loan amount is:

£1000 * 263.49% / 12  = £219.58

The 12 above is used as an estimate of monthly interest - the loan provider should be applying a proper daycount fraction of a year total (days/365.25 which is what it looks like they have above).

What the above means (£219.58) is that after the first payment your wife made (which I'm presuming was one month after taking out the loan) the first £219.58 of her payment was allocated to paying off the accrued interest before paying back any capital.

I calculate that using the figures of £1000 loan over 12 months with repayments starting one month after the start of the loan at an interest rate of 263.49% (and this isn't the APR please note which will be significantly higher than this) your wife's repayments each month would be c.£241.92.  Does this compare to what she has actually been paying?

I made it that after exactly two period of repayments the outstanding balance (excluding any additional interest due which lender are able to charge for early settlement - a max of 58 days) then the outstanding capital balance to be repaid would be £950.40 which does make this a very expensive loan.

Brassneck28

She had made 2 payments of £158.33

TrickyDicky101

Given the payments each month are £158.33 then that implies the APR on the loan is c. 272.5% - is this correct?  Also probably quoted somewhere on the agreement will be a nominal rate of interest of 139% per annum (which is saying the same thing as the APR).

At this rate, the first two months' interest would equate to £226.74 (so of those two payments she already paid at £316.66, £226.74 was just the interest element and not reducing the balance of what she owed).

When you come to settle - also dependent on the fee agreement entered into - the lender can include up to 56 days of interest on the capital balance to be repaid.  I suspect (but do not know - you'd need to check the agreement) that they actually include 28 days' interest which on the outstanding capital of £910 after two payments works out at an additional £96.97 of interest.

I expect you didn't ask for the settlement amount on the day your wife made her second payment so the delay between date of second payment and when you asked for the settlement figure probably explains your total interest figure of £346 which would be made up of:

Interest in first two repayments                                     £226.74
Additional settlement interest                                        £96.97
Interest from second pay date to settlement request    £22.29
Total interest                                                                £346

Which makes this a very expensive loan.