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UKSolicitorJA
UKSolicitorJA, Solicitor
Category: Law
Satisfied Customers: 4312
Experience:  English solicitor with over 12 years experience
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We have a business loan with AI- taken out in 2007.( 15 years

Customer Question

We have a business loan with AI- taken out in 2007.( 15 years term) The term was base rate plus 2%. We carried out paying full instalment . Now when the things are bit tight , we ask AI to review the monthly payment in line with reduced base rate. Bearing in mind the base rate in 2007 was 5.25%.

They are saying they are not obliged to do so- if we want monthly instalment reduced we have to pay 4% over the Libro rate.

I think this is not fair at all.
Can you help?
Thanks Pav
Submitted: 2 years ago.
Category: Law
Expert:  UKSolicitorJA replied 2 years ago.
Hello,

I do not understand what the issue is.

If the interest rate is base rate plus 2%, it should be 2.5% currently (as the current base rate is 0.5%).

Or I have misunderstood something?
Customer: replied 2 years ago.

Ok Let me restart.


 


When we took out business loan in 2007( 15 years term) there head of terms were 2% over the base rate because at that time base rate was 5.25%. The allied Irish worked out our monthly instalment at £2815.


Since 2007 there are many bank of england base rate reduction but allied irish bank has not bought our monthly instalment in line with reduced bank of england base rate.


 


We are asking them since 2010 to bring the monthly instalment in line with reduced base rate.


To date they haven't done this.


 


IN Feb, I wrote to them saying that if they will not do that I will stop paying all together . Then they wrote back to me saying they are not obliged to bring the monthly instalment in line with base rate- that is discretionary.


 


If we want lower payment they will draw up new 8 year contract and they will charge 4% over the Libro base instead of 2% which we are currently paying now.


 


In my view this is wrong, since we are not asking for new loan , all we are asking is what ever the remainder of the loan is , we should be paying monthly instalment according to agreed term at inception- which was 2% over the base rate for 180 months.


Does it make a sense?

Expert:  UKSolicitorJA replied 2 years ago.
Thank you.

Understood.

It is quite usual for banks to reduce the monthly instalments in line with interest rate reductions, if so requested by the borrower.

However, this is discretionary and they cannot be foreced to do so. If they continue taking the same instalments as before, it will mean that your loan will be paid off earlier than the original 15 years term as the interest rate element of your instalment will have gone down and the capital repayment element will have gone up.

So, all is not lost in the end for you and in fact you may be better off paying off the loan early as the same money in a savings account (about 1% these days) will not earn as much interest to compensate for the loan interest (2.5%p.a.).

I would suggest thatyou lodge a formal complaint with the bank about this to see if they are willing to reduce the instalments.

Can I assist further?
Customer: replied 2 years ago.

Hi I cant understand why they cant reduce the monthly payment. It says very clearly in the offer letter that rate of interest = bank of england base rate plus 2%. Surely the amount we are now paying is not correct and its much more.


 


Could you explain why can't we force them to adhere to loan term term.


 

Expert:  UKSolicitorJA replied 2 years ago.
Normally, in such scenarios, the repayments remain the same even though the interest rate has gone down which is balanced by the capital repayments going up.

Such loans are usually demand loans which means the lenders can call the entire loan in at any time even though it is a term loan, the lenders have the discretion.

Hope this clarifies.
Customer: replied 2 years ago.

Many thanks for your reply.


 


Do you think I should send you the agreement form so that you can assess the situation properly?


 


Thanks

Expert:  UKSolicitorJA replied 2 years ago.
This is a public Q& A site so I would advise against doing so.

You may leave a rating for the answers already provided and copy and paste relevant sections of the agreement here without including personal information.

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