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Post by lynnanthony on Feb 24, 2017 9:00:35 GMT
I have two loans (106, 180) that have underpaid this month. In both cases the payment has been made against principal leaving interest outstanding. I would expect interest to take priority. I'm certain that is what happens when for instance I pay a credit card bill - interest is paid first then anything left is taken from the outstanding balance. Is there a general industry wide policy in this area anywhere?
Comments?
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warn
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Post by warn on Feb 24, 2017 12:28:26 GMT
I suppose that if a short payment were applied to interest, leaving more principal outstanding than there should be, then that outstanding principal would itself attract an extra amount of interest, so throwing out the future repayment schedule. To fix that would, I imagine, mean changing some computer code, and we all know that is likely to be the road to Side Effect City, Arizona. So, easiest way to deal with it? Yes. Sound accounting practice? Not so sure.
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Post by lynnanthony on Feb 28, 2017 19:38:26 GMT
I asked the question on one of the affected loans, which gets priority when payment is short, interest or capital? The reply was posted today, "In line with standard banking practice (and indeed the order of payments in the event of a default on any loan), principal is always paid before interest as to do the alternate would result in increased interest accrual for the borrower which would not be classed as "Treating Customers Fairly". " Is that really standard banking practice? It does not strike me as unfair that if payments are not made in full then increased interest accrues. As it stands here the lender looses out, as we do not received interest on overdue interest. Essentially it seems to me that the lender is lending the borrower the overdue interest, interest free.  |
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jonah
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Post by jonah on Feb 28, 2017 21:07:43 GMT
I asked the question on one of the affected loans, which gets priority when payment is short, interest or capital? The reply was posted today, "In line with standard banking practice (and indeed the order of payments in the event of a default on any loan), principal is always paid before interest as to do the alternate would result in increased interest accrual for the borrower which would not be classed as "Treating Customers Fairly". " Is that really standard banking practice? It does not strike me as unfair that if payments are not made in full then increased interest accrues. As it stands here the lender looses out, as we do not received interest on overdue interest. Essentially it seems to me that the lender is lending the borrower the overdue interest, interest free. Think of credit cards. These days they always pay off the highest interest bearing parts of a debt first. The same logic would seem to apply here.
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Post by tybalt on Mar 1, 2017 6:36:15 GMT
Do they charge interest on the outstanding interest ?
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niceguy37
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Post by niceguy37 on Mar 1, 2017 10:00:13 GMT
I believe not.
Which is a bit of a pain on #79 A********** H**** L*** as the borrower is paying off the loan whilst the interest is accumulating, and I'm owed more in interest than principal.
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nick
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Post by nick on Mar 1, 2017 13:36:15 GMT
From a tax viewpoint, it is better that payments are categorised as capital rather than interest in the first instance (although with the ability to claim bad debt relief against income it is only really a timing issue).
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