Interest on interest

[riders2010]

Is it legal for a business to charge interest on the interest of a loan? Young guy here having a tough time of it with input supplier, dufus is supposedly charging over 30% interest on this years bill, according the young guy bill says 2% month but actual amount on statement is over 30%.

[wilagro]

See your lawyer...pronto.

[highwayman]

I believe the term is called compounding interest.
Happens everywhere. Retailer lines of credit can
be a very slippery slope. Make sure your fully
aware of the terms.

[riders2010]

Yes compound but if it doesn't say that on the original bill is it legal to compound? And 2 percent does not translate into over 30 even at compound.

[ALLFARMER]

2% a month is 24% a year

[charliep]

If you check your credit card statements, they actually provide a daily interest rate which applies. Many credit cards are compounded daily - more than even monthly. Read the original agreement and you will find out quickly how expensive trade/credit card debt is. Don't know the situation in question but too many take on interest rate debt without understanding the contract and commitment they are taking on.

[wd9]

Easily calculated using derivatives
if one fixes the initial balance (P 0), the nominal interest rate (r) and the duration of the deposit (T, in years) , you earn more interest with more compounding periods per year (K)

(d/dK)[f(K)] = P 0 * (1 r/K)KT * [ T * ln(1 r/K) K * T* (1/(1 r/K))*(-r/(K2 )) ]

[highwayman]

2% compounded monthly is much more than 24%
accrued annually. Every month the interest is
added to the principle and after a year without any
payments the total interest owed would be roughly
27% of the original principle. Our local coop retail
operates in this same fashion.

[riders2010]

All that the bill states is 2% per month, does not state compound. So my question is that if it does not state it to be compounded can it be legally? Anyways it still doesn't add to 30% a year even if compounded monthly. So what is this guys recourse. he is seeing lawyer next week.

[farmaholic]

Is the fellows line of credit or
operating loan maxed also. Would be a
cheaper form of credit, although its too
late now. Selling or taking a loan on
an asset would be a step backwards.
Tough spot to be in.

Sometimes I think that is just where the
industry would like us to be,
powerless, weak and vulnerable but not
to the point of not paying our bills.
Could you imagine if everyone operated
from a very strong financial
position....

[farmaholic]

One more thing, there was a fellow that
had trouble paying his crop supply bill at
the local retailer(small independent), in
the end the retailer wrote off all the
interest just to get the principle, cheap
loan!!

[riders2010]

Well don't know the exact particulars but with todays interest rate I think ripping someone for 30% is pretty much loan sharking. This is an independant dealer who has been expanding his land base with a number of farmers that went broke mainly couldn't pay the input bill there, I could see why now.

More to the story coming out this independant won't give any credit without mortgage of land. And that is his right but 30%??? People need to look elsewhere than to deal with a low life like that.

Surprised somone has rattled his chicklets, but could be coming if he f's over this young family as many locals getting pissed after hearing the interest being charged.

[wd9]

I believe it is only a mortgage is calculated semi
annually not in advance. The rest is open season
to be as short as possible. If it says 2 percent per
month that is your compound period.

100 becomes 102 at day 31. Next month it's
104.04. Interest on interest. They have told you
the compound rate and hid nothing.

[dmlfarmer]

Credit issuers often resort to the phase "On Outstanding Balance" to get around having to detail compounding on invoices. If the terms of the account says 2% interest monthly and the interest is not paid at the end of the month is automatically becomes part of the outstanding balance thus is subject to interest charges.

As far as a 2% rate being too high, or loan sharking - this is just another example of the deregulation of our financial system. Governments have turned a blind eye to financials and consumers are subject to whatever interest charges a company believes the market can bear. If you want to really see exorbiant "legal" interest rates (and charges), just look at what some of the payday loan companies charge the really poor who simply need a few bucks for groceries to make it to there next cheque.

On the question of paying more than 30% annually even though the stated interest rate is 2% monthly, is there a minimum payment due each month? Some credit issuers charge a penaltly if a minimum payment is not covered. Utility companies are prime examples of this whereby if a payment is not made by a certain date, a penalty is charged.

I do not condone what this business is charging but at the same time I doubt there is little legal recourse if the farmer knew the terms of credit when he made the purchase (which by the sounds of it he did.) Just another example of how little protection our society provides those of society who most need it.

[vvalk]

What going on here on this thread. Everyday
single business in this country charges around 2%
per month, which means compounded, on
outstanding accountsc. Check your local napa or
co-op, pricess auto or whereever. doesnt matter
what industry. This is pretty simple stuff. Your 2%
get added to your bill after 1 month and then is
charged 2% on the new balance the next month.
What is a lawyer going to tell you? Take the
money your going to spend on the lawyer and pay
your bill down. Most loans at the bank are done
this way just that you actually pay the interest
every month so your balance doesnt increase and
therefore you don't pay interest on that the next
month.