Interest on buy now, pay later purchases

[CYNthesys]

Hi

Im useless at calculating interest, can anyone help please?

With the intention of paying off BNPL goods within 12 months a friend purchased electrical goods from Littlewoods in November 2009, cash price £629. The promotion was either pay cash amount in full by xxx date, or to spread the cost over 104 weeks at £10.19 per week, total cost if paying by instalments including interest at 29.9% APR was £1,060. Interest would be charged from the date of receiving the goods, ie over a 3 year period.

A few weeks before the due date my friend realised she would not be able to pay the full amount as a lump sum, so in order to avoid paying the full amount of interest she made a one off payment of £329 against this purchase.

The balance of the BNPL purchases was £300, yet Littlewoods have debited the full interest of £431 to her account. Littlewoods collect the same payments of £10.19 per week by direct debit (as though she was paying the full amount over 104 weeks).

At this rate the £300 balance and the interest of £431 will be repaid in full in 74 weeks as opposed to 104weeks

This does not by any stretch of the imagination represent 29.9% APR. Can anyone work out what rate of interest she is actually being charged in these circumstances?

The case is with the FOS, who so far have backed Littlewoods, but she is now asking for an Ombudsman to review the case.

[Caspar]

Re: Interest on buy now, pay later purchases

This link is in dollars, but just read GPS instead.

Interest Rate Calculator

[WendyB]

Re: Interest on buy now, pay later purchases

You would need to check the terms and conditions of the original agreement. There is probably something saying that if it's not paid in full, then the whole of the interest will apply to the original sum borrowed, or something equally confusing designed to rip off the customer.

[Amethyst]

Re: Interest on buy now, pay later purchases

The £413 is the charge for credit top loaded interest which you are let off if you pay in full by the due date. As she didn't pay in full by the due date she has incurred the full amount of interest.

All I think you can hope for from the ombudsman is the 29.9% APR applied to the £629 for the 11 months, then to the remaining £329 for the 1 month and the remaining 2 years (24 months / 104 weeks).

So interest of 172.33 for first 11 months, the £186.87 for the next 25 months = £359 interest - plus original loan of £629 - total £988. (if paid over the 104 week period thats £9.50 a week)

Bear in mind my maths is terrible but I think that would be deemed fair by the ombudsman IF you can get them to waiver on the original T&C's of the loan, which is unlikely but more likely put like that than that she shouldn't pay any interest on that £300 as it was paid before the cut off date.

[Turboman]

Re: Interest on buy now, pay later purchases

Cynthesis--74 should read 72 I think in first post

The £413 is the charge for credit top loaded interest which you are let off if you pay in full by the due date. As she didn't pay in full by the due date she has incurred the full amount of interest.

All I think you can hope for from the ombudsman is the 29.9% APR applied to the £629 for the 11 months, then to the remaining £329 for the 1 month and the remaining 2 years (24 months / 104 weeks).

So interest of 172.33 for first 11 months, the £186.87 (how do you get this Ame?)for the next 25 months = £359 interest - plus original loan of £629 - total £988. (if paid over the 104 week period thats £9.50 a week)

Bear in mind my maths is terrible but I think that would be deemed fair by the ombudsman IF you can get them to waiver on the original T&C's of the loan, which is unlikely but more likely put like that than that she shouldn't pay any interest on that £300 as it was paid before the cut off date.

[CYNthesys]

Re: Interest on buy now, pay later purchases

The Ombudsman is relying on terms of promotional literature provided by Littlewoods that does not illustrate the particular goods she bought. Friend did not at any time receive a CCA from Littlewoods, yet FOS are also choosing to rely on an unsigned generic CCA that Litlewwods provided them.

Friend has argued that her statements say - to avoid paying ANY interest the full amount needs to be paid before the BNPL expiry date. This begs the question as to why Littlewoods has deemed it necessary to use the word ANY in the first place.

The BNPL T&C say "interest will not be applied to the account until the end of the BNPL period. You can avoid ANY interest by contacting us and paying the cash price in full before the end of the BNPL period"

Despite having already paid off £329 Littlewoods debited the full cost of the purchase plus interest to her account 3 weeks before expiry of the BNPL period, then proceeded to credit her account with the £329 payment she had made.

Doesn't seem right to me.?

[Amethyst]

Re: Interest on buy now, pay later purchases

how do you get this Ame

Yeah okay pick on my maths.

Okay original amount borrowed 629 @ 29.9 % PA

29.9% of 629 is £xxx

divided by 12 is £xxx

x 11 months is £xxx (so thats first figure to the date she paid the £329 off)

then you have 25 months at 29.9% PA on the remaining £300 ...

lol. (I couldn't be pooped to work it out again but thats the theory anyway)

[Amethyst]

Re: Interest on buy now, pay later purchases

Cyn, doesn't seem right to me either, as she could have paid that £329 and two weeks later (still before the BNPL deadline) paid the remaining £300 - and they would have had no right to add any interest at all. She COULD argue that that's what she would have done had the balance not suddenly shot up when she made the first payment. (I'm not saying she should argue that at all btw but it should be pointed out to the ombudsman)

[Turboman]

Re: Interest on buy now, pay later purchases

Agree with both of you---not right

Cheers Ame--Will do some sums when i've had a glass

[CYNthesys]

Re: Interest on buy now, pay later purchases

Thanks Ame

Just a little query where you say - then you have 25 months at 29.9% PA on the remaining £300 ...

Because Littlewoods have not adjusted the weekly payments to take account of the £329 she had already paid, they have been collecting by direct debit the sum of £10.19 per week (which is the weekly amount over 104 weeks that would be due had she not paid £329 off)

This will result in the purchases being paid off in around 18 months and not the 25 months that your refer to

[Turboman]

Re: Interest on buy now, pay later purchases

I'll come back in 60 mins---I'll put figures into AmortiZit where we can recalculate the actual apr she's been charged etc over the whole period (which is what you asked)--the calculation of interest needs correcting btw

EDIt----having to reload laptop back to factory settings (network playing up)--Amortizit is on that---but will post when I can

[Turboman]

Re: Interest on buy now, pay later purchases

Sorry late---laptop collapsed---but found a computer with the program I wanted

Firstly----As Wendy says---it probably in the T & C's that if you don't pay off in full in the first 12 months then the interest (on your agreement and pre calculated as £431) would be payable---IRRESPECTIVE of part payments and reduced months in next 2 years-----in which case you could be "stitched up"--I remember a similar one somewhere where this was the case (on another site).

Secondly----we have the case of Littlewoods jumping the gun re adding the interest----Ame has a good argument----but RECHECK date of agreement and date of goods receipt and date of The £329 payment

Thirdly---Interest---I'm good at maths and spreadsheets but Bill is the expert re using interest rates/calculating em----but I'm not bad-so here goes

When considering all these interest %'ges etc----I use Pine Grove Software AmortiZit which allows all the variables of a loan to be input--except any 1---and then calculates the missing variable (ie %,Amount of Loan,No of payments,Amount of payments, cInterest calculation method (weekly/monthly/compound/simple eetc), etc etc
It also caters for delaying the first payment for (say) 12 months as in a BNPL agreement

I've left one of my worksheet notes unfortunately---BUT

first of all--APR is a % designed to allow compariosons across lenders and takes account of interest and one off arrangement fees for instance

I think I once (I may be wrong) heard it defined as the % if you don't pay anything back in a year.
Anyway--in very simple rough eneral terms -- you would expect to pay back interest on a loan (in real terms) of approx just over half of the APR %---this is cos one is reducing the debt monthly--ie--reading from an example in my Virgin CC contract re APR--£1200 at APR 16.8% paid back in equal instalments only attracts £104.30 interest--ie 8.66% simple

So Ame---you cannot use 29.9% and divide by 12 etc--don't put yourself down re your maths-your maths is good but theory wrong (I think).

I calculated £629 over 3 years with a delayed 12 mth start date--left notes(check tomorrow)--however i would expect it to be £431 in interest

btw---£300 payable by 72 @ £10.19 gives apr at 62.18%
btw---£629 payable by 104 @£10.19 gives apr 58.66%---this would come down after allowing for the first yr to around 29.9% I think (will see tomorrow)

Will have another go tomorrow---BUT scan the agreement/T& C's if you got em and post up as they are the key and you could be stitched up contractually to pay £431 interest if it goes beyond 12 months and uncleared.

[CYNthesys]

Re: Interest on buy now, pay later purchases

Thanks Turbo
She has had to rely on her statements and a document that is headed Buy Now Pay Later Terms & Conditions as Littlewoods never provided her with a CCA Agreement (as is often the case with catalogues)

The BNPL T&C document reads-
Interest will not be applied to the account until the end of the BNPL period. You can avoid any interest by contacting us and paying the cash price in full before the end of the BNPL period.

Messages on her statements read-
To avoid paying any interest £629 is required to be paid by 22nd November 2010.

I cant get my head round why they are using the term any interest, if they mean the interest or all of the interest

As it would be paid off in 72 weeks the APR you calculated far exceeds the contractual rate quoted. Would this be considered a breach of contract on Littlewoods part?

[WendyB]

Re: Interest on buy now, pay later purchases

Thanks Turbo


I cant get my head round why they are using the term any interest, if they mean the interest or all of the interest

Personally Cyn, I think you're reading to much into it, I think it's just incorrect grammar. As in, what they mean is, in order to not pay the interest.

[Turboman]

Re: Interest on buy now, pay later purchases

Personally Cyn, I think you're reading to much into it, I think it's just incorrect grammar. As in, what they mean is, in order to not pay the interest.

I agree with wends-Cyn