Interest on interest

[wd9]

FV = PV × (1 r)to power of n

where FV = Future Value
PV = Present Value =$1000
r = interest rate = 2%
n = number of periods = 12

FV = 1000 x (1 .02) to the 12th

FV = $1000 x 1.268
FV = $1268

So, annualized interest rate is 26.8%.

If he is being charged more than that
and is unfamiliar with a calculator,
money spent on an accountant who will
explain his bill to him would be better
than a lawyer.

[ColevilleH2S]

I don't know about the 30% part but the reason retailers charge 2% compounded monthly is that THEY DON'T WANT TO BE YOUR BANKER. If someone didn't pay me for 30 days I'd resort to this kinda stuff too. Tell the guy to find a bank or credit union and get a running line of credit. Or if that is not an option, find a different retailer who will give credit on better terms (they are out there).

[wd9]

Oh and if you wanna do it backwards:

PV = FV / (1 r)to power n

So you can determine what the original
value was if you know todays bill (FV) the
monthly rate (2% or .02 in formula) and
number of months back (n).

[vvalk]

Rider. What is the problem? I am honestly trying
to figure it out. When you buy anything from any
business, it states on the bottom of every bill that
unpaid balances get charged 2% interest per
month. Not agribusiness, any business in this
country. 2% per month means if you don't pay that
month 2% get added to your bill. Then you pay
2% on that new bill the next month. So yes if you
don't pay your bill for an entire 12 months you
would pay 27% or whatever. It's pretty simple
really, isn't it?

[wd9]

Agreed vvalk. What is the real issue? Its
not loan sharking, not out of the ordinary
in any way whatsoever. Not illegal, its
just compounded interest on unpaid balance
like every bill/loan on the planet.

[highwayman]

The reason why the interest would revert to
5%/annum from 2%/month is I suspect that the
retailer has issued a writ against this individual in
order to collect this account. When a writ is issued
interest is automatically locked to 5 % to my
knowledge. He's actually doing the fellow a favour
by taking this action.

[riders2010]

No the original bill stated 2 percent, he charged what would equal 30% starting first month. Kid has lucked out with a lawyer that worked on some group advocacy for borrowers or something like that. Which set precident that if you do not state the effective interest rate on original bill and you charge more than the for example the 2% per month of original balance your interest is reverted to 5%.

For those so sympathetic to the ass hole. Yes it is simple if you do not want to give credit don't but why is it that they are all at the magical number of 2% per month when bank rate is prime plus a couple, how the f is 24% never mind 30% ethical?

So in that case is it ethical for me to charge grain companies interest if they do not take my grain on date specified? Why not 30% a month if you do not take my malt? We are so brain washed into thinking that its normal for us to be f'd over its hilarious how stupid we are as farmers.

[countryguy]

"We are so brain washed into thinking that its normal for us to be f'd over its hilarious how stupid we are as farmers."

I think that is the most truthful statement that I have ever read on Agri-ville.

[wd9]

Riders, simple, include it in the
contract.

[ColevilleH2S]

Riders2010 your example in the last
paragraph is not comparable. Since
possession is 9/10ths of the law, you
would still control your malt in the
bin, where as the young guy in question
has taken home the crop inputs.

I still do not have an issue with 24% or
even 124%. As long as the two parties
agree to it beforehand.

He is an adult correct?