Post by reeknralf on Sept 15, 2016 19:05:17 GMT
On Monday I sent the email below to FS. I haven't had a reply.
I have a question about the way you calculate interest on overdue loans.
Consider 2 identical 12% loans. The first renews after 6 months and pays back after 12 months. This borrower pays 1.06x1.06=12.36% interest. The second borrower, doesn't pay the interest after 6 months, and the loan drifts for a further 6 months, before finally being repaid. This borrower pays only 12% interest.
As such, a borrower who doesn't pay his interest on time, pays a lower annual rate of interest, than a borrower who pays on time. Similarly lenders stuck in a loan which drifts for a long time (I'm thinking of south wales) not only have their money tied up longer than was contractually agreed, they are also penalised by a lower annual rate of interest. Surely from 183 days, interest should accumulate not just on the capital borrowed, but also on the interest which ordinarily should be paid at 183 days?
Because of the way FS calculate interest, the longer a loan goes overdue, the lower XIRR becomes. South Wales XIRR is now down to 11.9% against a contracted 12%; this in addition to having to hold a 183 day loan for 405 days and counting. I think this merits a reply, or am I just being pedantic?
I have a question about the way you calculate interest on overdue loans.
Consider 2 identical 12% loans. The first renews after 6 months and pays back after 12 months. This borrower pays 1.06x1.06=12.36% interest. The second borrower, doesn't pay the interest after 6 months, and the loan drifts for a further 6 months, before finally being repaid. This borrower pays only 12% interest.
As such, a borrower who doesn't pay his interest on time, pays a lower annual rate of interest, than a borrower who pays on time. Similarly lenders stuck in a loan which drifts for a long time (I'm thinking of south wales) not only have their money tied up longer than was contractually agreed, they are also penalised by a lower annual rate of interest. Surely from 183 days, interest should accumulate not just on the capital borrowed, but also on the interest which ordinarily should be paid at 183 days?
Because of the way FS calculate interest, the longer a loan goes overdue, the lower XIRR becomes. South Wales XIRR is now down to 11.9% against a contracted 12%; this in addition to having to hold a 183 day loan for 405 days and counting. I think this merits a reply, or am I just being pedantic?
