Interest on interest

[riders2010]

Is it legal for a business to charge interest on the interest of a loan? Young guy here having a tough time of it with input supplier, dufus is supposedly charging over 30% interest on this years bill, according the young guy bill says 2% month but actual amount on statement is over 30%.

[wilagro]

See your lawyer...pronto.

[highwayman]

I believe the term is called compounding interest.
Happens everywhere. Retailer lines of credit can
be a very slippery slope. Make sure your fully
aware of the terms.

[riders2010]

Yes compound but if it doesn't say that on the original bill is it legal to compound? And 2 percent does not translate into over 30 even at compound.

[ALLFARMER]

2% a month is 24% a year

[charliep]

If you check your credit card statements, they actually provide a daily interest rate which applies. Many credit cards are compounded daily - more than even monthly. Read the original agreement and you will find out quickly how expensive trade/credit card debt is. Don't know the situation in question but too many take on interest rate debt without understanding the contract and commitment they are taking on.

[wd9]

Easily calculated using derivatives
if one fixes the initial balance (P 0), the nominal interest rate (r) and the duration of the deposit (T, in years) , you earn more interest with more compounding periods per year (K)

(d/dK)[f(K)] = P 0 * (1 r/K)KT * [ T * ln(1 r/K) K * T* (1/(1 r/K))*(-r/(K2 )) ]

[highwayman]

2% compounded monthly is much more than 24%
accrued annually. Every month the interest is
added to the principle and after a year without any
payments the total interest owed would be roughly
27% of the original principle. Our local coop retail
operates in this same fashion.

[riders2010]

All that the bill states is 2% per month, does not state compound. So my question is that if it does not state it to be compounded can it be legally? Anyways it still doesn't add to 30% a year even if compounded monthly. So what is this guys recourse. he is seeing lawyer next week.

[farmaholic]

Is the fellows line of credit or
operating loan maxed also. Would be a
cheaper form of credit, although its too
late now. Selling or taking a loan on
an asset would be a step backwards.
Tough spot to be in.

Sometimes I think that is just where the
industry would like us to be,
powerless, weak and vulnerable but not
to the point of not paying our bills.
Could you imagine if everyone operated
from a very strong financial
position....