155% interest on loan?

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philthom

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A buddy of mine went to make a personal loan at a bank, and was assured by the consultant there's no early repayment penalty. He borrowed R7000 for 6-months and 20 days later had to settle it at R8160! That's like 155% interest! WTH???
 
Actually, it's 16.57% interest, not 155%. He had to pay back the R7000, leaving R1160 in interest, which on R7000 is 16.57%.

High, yes, but short-term loans always are because they are high-risk.
 
The term of the loan is 6-months. If interest accrue on a daily rate, then it is 187/20 x 1160/7000 x 100 = 155% My calculations may be wrong, but seems still extremely/illegaly high!
 
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They made the loan, and he agreed to pay them back over that period of time, including paying them a fixed value in interest. They then split that amount up over his monthly payments to make it easier to pay back.

Basically he said, give me R7000. They said fine, if you pay us R7000 plus R1160 back at the end of the loan. We'll spread it out over 6 months, so you don't have to pay it all in one lump sum. He paid early, but is still liable to pay back the two amounts. Just the way it works. If he took 1 month or 6 months, they still would have held him to the fixed amount of projected income, in the form of the R1160
 
No early payment penalty... so that means that the amount he would need to repay in 6 months (R8160) would not be different than the amount he would need to pay back if he repays it earlier (R8160). He needs to pay back the full R8160 even if he only had the money for 1 day.
 
Synaesthesia said:
So I guess the translation is "no benefit for paying back early"
Click to expand...

Only if the loan repayments where treated as an annuity.

I have a personal loan where the repayment is done as an annuity and I score by paying over the full period of the loan with time value of money vs me settling the full amount.
 
Are you sure that R1 160 is interest only? Dont forget that there is also stuff like "admin fees, loan inititaion fees, credit protection.." etc etc.. so you might find that the interest is just R500 bucks and the balance is those other "extra costs"
 
Guys, in light of what has been posted, I have done some research and found that the bank in question charges interest on a monthly basis, and if you settle the loan earlier than its maturity date, you do "save", by not paying interest on the terms outstanding. So, a 12-month loan settled at the 6-month mark, means paying only interest up to the 6-month mark, and not the full terms' interest as some of you guys have been saying.

It might be so that additional costs, such as admin and initiation fees have been charged, but the full repayment amount above and beyond the premium still amounts to a 99%. (1160/7000 x 6/1 = .9943)

What I would like to know is the legality behind this? Isn't there a ceiling limit for micro-lending institutes to collect above and beyond the premium: whether it be interest and/or admin fees?
 
We paid a loan back early, had to pay interest and some early payment penalty.
 
was a few years back, haven't made a loan from a bank since. Zero interest at work.
 
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