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APR,TCC and TAP and how they affect enforceability

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  • APR,TCC and TAP and how they affect enforceability

    Thought this may be useful for those interested in numbers wrote it a while ago so appologies if you have seen it before

    Fees Charges interest and APR


    A quick intro to the subject just skip the bits you already know.

    Interest
    Basic or flat rate annual interest is calculated using three basic values
    1) Total Credit (the amount you borrow)
    2) Interest
    3) Repayment period
    The sum of the first two is the Total Amount Payable (TAP)
    So say you borrow £200 pounds over 24 months and the interest is 30% p/a
    The interest on the credit would be £60 per year for two years or 2*60=£120
    The TAP would be interest + total credit £320
    The repayments would be 320/24 = £13.33 per month

    APR
    The flat rate interest can be used by the lender when comparing various loan options in order to get the best deal but it does not give the full picture it ignores two important points.

    1) The repayment intervals
    Say you borrow £100 with twelve monthly repayments at a flat annual rate of 6.5%.
    This means your TAP is £106.5.
    Now say you borrow the same amount £100 over twelve months but you repay the loan in one repayment on the last month of the term (ie one payment of £106.5)
    The flat rate on both loans are the same but which gives the better deal?
    Obviously the second because you have had the use of the money longer before you have to pay it back,
    The APR takes account of this in the first instance the APR would be 12.68% and in the second a much more attractive 6.5% .
    This is worth remembering when we talk about fees and charges that are paid in addition to the first or as an initial payment ,as we have seen an irregular payment especially at the beginning of the term can have a great effect on the APR

    2) Fees Charges and Compulsory Insurances
    The additions of fees charges or other items that must be taken out in order to get the loan will of course effect the desirability of the loan purchase and must be reflected in the APR.
    This is done by directing the creditor to add any such sums to the interest creating a figure known as the :
    Total charge for Credit


    TOTAL CHARGE for CREDIT consists of any monies that you contractually agreed to pay in order to procure the loan. It Includes;
    • The interest charged on the loan
    • Any setting up fees charged by the creditor
    • Any insurance that was conditional on you getting the loan (if you didn’t buy they wouldn’t give you the loan)
    • The final purchase element on a hire purchase agreement
    • Any brokerage charges
    • Any attached agreements necessary to the purchase of the loan
    (An exhaustive list of charges that should be included in the TCC are contained in the TCC regulations 1980)

    We have seen that that he interest rate is calculated using the total credit and the amount of interest .

    The APR. is calculated by using the total credit and the (amount of interest + all the compulsory charges (or the TCC) ).

    The Regulations and Total Charge for Credit
    Section 9(4) of the Consumer Credit Act 1974 says
    “For the purposes of this Act, an item entering into the total charge for credit shall not be treated as credit even though time is allowed for its payment.”
    Section 20 enables the secretary of state to definewhat items are to be treated as entering into the total charge for credit, and how their amount is to be ascertained;”.
    This he does in the statutory instrument, Total Charge for Credit Regulations.

    Correctly applying fees and charges to an agreement.
    If a fee or charge falls into the category of a charge for credit as we have seen the regulations give instructions on how it should be added to the agreement this is not always as straight forward as it seems.
    Say you buy a car for £2000 the interest is 40% which comes to £50 and the dealer wants to charge you a document fee of £20.
    Total credit £2000

    Total charge for credit made up of £50 interest + £20 fee

    TAP £2070
    The repayments on equal monthly payments would be 2070/12= £172.50
    This is in accordance with the act as the fee is include within the TCC and as we saw earlier would give an accurate figure when the APR is calculated.

    Now lets look at what sometimes happens.

    A)
    A fee is charged at collection of the vehicle as well as being in the total charge for credit.
    This is easily overlooked as the salesman usually says that you are simply paying of the fee up front and it will be knocked off your total, this is of course bull. As we see here it increase your TAP and ends up in the dealers pocket he then sends the undeterred agreement to the credit company and bobs your uncle.

    Total credit £2000 +£20

    Total charge for credit made up of £50 interest + £20 fee

    TAP £290

    B)
    The fee is added to the total credit
    This breaches section 9(4) of the act because as you see it has caused the interest rate to increase and also the TAP which will also of course result in the repayments being increased.
    This is not always easy to spot on the agreement, what usually happens is that the first payment is increased in order to pay the fee.
    There is no way of getting around the illegality of this.
    Total credit £2000 +£20

    Total charge for credit made up of £50.5 interest

    TAP £2070.5

    C)
    The fee is just for convenience being added to the initial payment, but is separate to the main agreement on which all the calculations for APR are correct.

    This would mean that a compulsory fee was not being factored into the calculation for APR and it would be therefore inaccurate.

    Note
    It is not as easy as just saying that the creditor cannot add the fee to the first payment. He can but the fee must form part of the charge for credit and must have an effect on the APR.
    The only way to check that he has complied is to do the maths and calculate the APR
    1 With the fee included in the Total charge for credit.
    2 With the fee included in the Total Credit
    If the figure on the agreement agrees with 1 then the agreement is OK if it agrees with 2 then you have your claim for unenforceability.
    (Remember that if the agreement has a larger initial payment your calculation will have to allow for an irregular first payment in order to give an accurate APR see ((1) The repayment intervals above.)

  • #2
    Re: APR,TCC and TAP and how they effect enforceability

    Hi Peter, do you have a way to calculate APR and is APR important with regard to the agreement?

    I appreciated the post on TCC. Hopefully I will be putting that to good use with one or two of my old agreements.

    ToP

    Comment


    • #3
      Re: APR,TCC and TAP and how they affect enforceability

      Hi yes

      Just been onyour thread. Have to stop meeting like this people will talk.

      Howare you with Excel the program i use requies the payments to be loaded into sepperate cells no problem if they are all the same because you just use the copy down function, it then uses the go-seek utility to run through all posssible results until it finds a value that fits. It is very accurate and takes nto account payment breaks ,irregular sums and payments, but it is a bit of a pill to set up.

      Peter

      Comment


      • #4
        Re: APR,TCC and TAP and how they affect enforceability

        Hi Peter, I just forund this

        http://www.oft.gov.uk/shared_oft/bus...dit/oft144.pdf

        and was working my way through it.

        I'm reasonably useful on XL. Is the prog available on the net?

        ToP

        Comment


        • #5
          Re: APR,TCC and TAP and how they affect enforceability

          Hi I down loaded it a few years ago just had a look and it appears tobe still therre.

          Type www.iansharpe.com into your browser then click on downloads, scroll down to APR.

          Its a free program and comes with instructios and a lot of good info on APR.

          Peter

          Comment


          • #6
            Re: APR,TCC and TAP and how they affect enforceability

            Amazing bit of s/w. When I get my pension I shall have to send him some of it. Is this up to date?

            ToP

            Comment


            • #7
              Re: APR,TCC and TAP and how they affect enforceability

              Originally posted by TiredofPaying View Post
              Amazing bit of s/w. When I get my pension I shall have to send him some of it. Is this up to date?

              ToP
              Hi
              Yes as far as anything we want to do with it,it is the most simple yet accurate method i have seen.

              If you examine the cells you can break down the formula, it iis exactly the same as quoted in the 1980 SI. in fact the IRR method is recomended in the OFT guidline.

              Personally i dont use that one i use the one using the go- seek function i find it more self explanitarry, and it also adds up your payments and gives you your TAP

              Peter

              Comment


              • #8
                Re: APR,TCC and TAP and how they affect enforceability

                Hi
                By the way have you got the hang of altering the number of repayments in ordeer to taylor it to different length agreements.

                You just delete the appropriate number of rows and then alter the target coordinates on the bottom cells of each column.
                I done this for 12 months,60 months etc then saved them so i can just go to the appropriate one without haveing to alter the source program every time.
                Peter

                Comment


                • #9
                  Re: APR,TCC and TAP and how they affect enforceability

                  Yes, I managed to use the NFU model and add extra rows then copy down the formulae and change the totals. Amazingly it came out to exactly what I wanted. Shame the opening balance on the statement doesn't match the amount shown on the agreement under Total Credit. I shall be interested to see how that discrepancy is explained!

                  Thanks for your help. Learnt a lot today.

                  ToP

                  Comment


                  • #10
                    Re: APR,TCC and TAP and how they affect enforceability

                    Originally posted by peterbard View Post
                    Hi yes

                    Just been onyour thread. Have to stop meeting like this people will talk.

                    Howare you with Excel the program i use requies the payments to be loaded into sepperate cells no problem if they are all the same because you just use the copy down function, it then uses the go-seek utility to run through all posssible results until it finds a value that fits. It is very accurate and takes nto account payment breaks ,irregular sums and payments, but it is a bit of a pill to set up.

                    Peter
                    Hi Peter

                    Can you tell me more about this program you use please and can I use it?

                    Mathematics is not my strongest 9as you have probably gathered!)

                    I have naturally been looking at all my agreements and wondered if you could explain what you mean by TAP etc.

                    I have an agreement that includes the broker fee in the total loan amount and then the brokers fee is again included in the total charge for credit.

                    I have been trying to get my head around it but I am confused!
                    ------------------------------- merged -------------------------------
                    Originally posted by peterbard View Post
                    Hi I down loaded it a few years ago just had a look and it appears tobe still therre.

                    Type www.iansharpe.com into your browser then click on downloads, scroll down to APR.

                    Its a free program and comes with instructios and a lot of good info on APR.

                    Peter

                    i downloaded this but I dont fully understand !! Told you I was crap
                    Last edited by fallenangel; 26th September 2011, 14:40:PM. Reason: Automerged Doublepost

                    Comment

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