 Surprise!
The interest rate is 90 percent
|
 Dear
Debt Adviser,
We have a person trying to collect $90 interest, per month, on a
$1,200 debt. Can you tell me what rate of interest this would be
and if this is legal? Nothing was ever agreed to in writing, or
verbally beforehand, regarding interest. We have repeatedly tried
to pay her the $1,200 and she is refusing to accept it. She's demanding
that we pay this "interest" as well. We are less than
90 days late in paying this debt, and she is trying to charge us
four months' worth of interest ($360). One month went by before
we even knew what the amount of the bill was. I really very much
appreciate your attention to this matter. Thank you.
-- Toni
 Dear
Toni,
I can't believe you took a loan from "a
person" without knowing the repayment terms or the interest
rate.
For the record, the interest rate
that she is asking you to pay is a 90 percent annual simple interest
rate. If you knew the person who lent you the money, shame on them
for charging you such a high interest rate. If you didn't know the
person, shame on you for not asking basic questions. Now that we
have the shame part out of the way, let's see what your options
are. A note of caution however -- if this person does this for a
living, then all bets are off.
The situation that you find yourself in is why it
is always a good idea to discuss the terms for borrowing money from
anyone before money changes hands, and put the agreement in writing
to make sure you both understand what is being agreed to. Had you
known that this individual was planning to charge you $90 a month
in interest charges, you might have passed on the loan.
The general rules for this sort of thing are covered
by your state usury laws. These laws typically exempt big banks,
pawnbrokers and payday loan companies. They do, however, apply to
individuals. You can find a list of the state rates allowed at www.lectlaw.com.
My guess is that individuals who lend money without a written note,
and at 90-percent interest, may not be impressed with the law.
For my readers who are considering a loan transaction
with an individual, let me offer this advice: Whenever you are lending
or borrowing money, first get the terms in writing. Be sure to include
the interest rate, due dates and payment amounts. Specify what happens
if there should be a late or missed payment. Agree on a payment
address, and ask for receipts for payments.
One of your options is to put in writing an offer,
to the person from whom you're borrwing the money, for a reasonable
interest rate -- say 15 percent or $15 per month, for the four months
that she believes you owe interest on the $1,200 loan. Send the
offer by U.S. mail, certified, return receipt requested. (This is
a paper trail that will allow you to prove your side of the story
in court, should things get that far.)
If she refuses the reasonable interest-rate offer,
then you have a decision to make. Either send her a check for the
original $1,200 with a letter stating you are paying her back the
original amount of the loan and nothing else or send her a check
for the total amount she is asking including the $360 in interest.
If this transaction was with a less-than-reputable
person who does this sort of "lending" for a living, I
would recommend preserving your health and well-being by paying
the $360 in interest. You can chalk the loss up to experience, and
as life experiences go, many others are much more expensive.
Toni, I know you
want to make good on the debt and possibly keep whatever relationship you have
this person going. In the future, remember, the devil is in the details, so beware
of the details of the deal. Good luck!
The
Debt Adviser, Steve Bucci, is the president of Money Management International
Financial Education Foundation and the author of Credit
Repair Kit for Dummies. Visit MMI
for additional debt
advice or click here
to ask a debt question. | 
