Question about interest

Is the CA permitted, by law, to charge a different interest rate than what TX allows for on collection accounts??

I can see what you mean..dont want to rock the boat since you have an arrangement to pay and keep it off of your credit report.

Is this agreement in writing?

good point volley, make sure that you do have something in writing and have them spell out exactly the interest rate they are charging you, perhaps you can come to some sort of terms about the interest rate...I don't know just a thought..other people will be along to advise you...good luck

I do have it in writing...I am learning. :lol: The interest rate is 10%, Texas is 6%...perhaps I am making a mountain out of a moehill over 4% LOL..I just am so bristly with CAs I have not worked with because I do not know how they are. basically Texas law says that if no interest rate was agreed upon by both parties, the company can charge 6%..I guess I just answered my own question..they can attempt to charge whatever they want or I don't get to finance it. *sigh*

How exactly is interest figured anyhow? is there an easy formula that can be used with a calculator? I don't know how that works..I assume it is annual, so if say a bill was 100 bucks and the interest rate 10% then if you paid it off in 1 year you would pay $110?

Your interest calculation is correct -- but only if the interest is compounded annually.

Most places compound monthly. In that case you take APR/12 X balance to get the monthly interest. (Your example would be 10%/12*100 = 83 cents.) Your new balance at end of month would be $100.83 (and if you didn't make any payment, then next month they will calculate the interest on $100.83, which would be 84 cents).

As for the CA charging more than the statutory rate, you might have answered your own question (they can charge any agreed upon rate). BUT look a little deeper into the state laws, there may be limitations.

For example, Illinois has a similar provision (a company can charge 5% or any other agreed upon rate). But IL also says the most they can charge is 9% without a license. To charge 10% in IL, that CA would need to have a loan license.

wow so then a company could charge interest on interest?? that just doesn't seem right..the letter just said 10% interest....so I thought that meant yearly. Hmm. ok. thanks!

Doesn't seem right, but usually true. That's how the credit cards work - they compound monthly. Except they have this really complex formula whereby they use your average daily balance for figuring out the month's interest.

Now I'm wondering if the deal you struck up might be considered "closed-ended"? Did they give you a set # of payments and due dates? If it is closed-ended then they might not be able to "compound".

Most states require closed-ended contracts to be either simple interest or precomputed (Rule of 78ths). Places don't often use 78ths anymore, because it was mainly used back in the days before computers could keep track of simple interest.

Simple interest contracts will actually charge daily interest on the principle balance. (These are the types of loans where your payments are split up between interest and principle). Under the US Rule, simple interest does not compound, the loan accrues interest in a separate "hopper" -- then as you make payments, your payment first pays for all the accrued interest and anything left goes to the principle.

For your example, under simple interest formula, the daily interest would be (10%/365*$100)=2.74 cents per day. 42 days later, if you made a payment of $25, then (2.74*42)=$1.15 would come out of that payment for the interest and ($25-1.15)=$23.85 would bring down your principle. Then interest would be calculated on your new principle until the next time you paid.

Most car loans or any other installment contracts you have will be simple interest.