The Voice - Consumer's Voice

How much must I pay?

Richard, assist me here please regarding micro lenders. They lend me money, I was given P3,000 and they tell me their interest is 25% and I told them ok I will pay in 3 months. To my surprise my first deduction was P1,536.89 and now they are telling me the balance will also have another 25%. I want to know is it how they should operate? It's a registered micro lender and they are telling me they are using PayM8 system. I asked them so why the first deduction so high. I thought 25% of P3,000 should be P750.

I think you've misunderstood how borrowing money works. I also think the microlender you selected completely failed to explain it to you. That was their job.

When you borrow money from a commercial lender, there are two parts of the debt. Firstly, there's the capital amount that you borrowed. You borrowed P3,000 over three months so you can expect to pay that amount back in three installments, averaging P1,000 each month.

On top of the capital there's the cost of borrowing and the biggest component will be the interest, in your case 25% of the capital amount each month. The exact details will depend on the loan agreement you signed but I think you've forgotten about the capital repayment. I did some simple calculations based on what you told me and the figure they're charging you does seem to be approximately what I would expect.

If you haven't got it already, you need to ask this microlender for a copy of your loan agreement. You then need to read it carefully and ask them to explain anything you don't understand.

Why did they reject me?

I bought a cellphone from a store at Riverwalk last year on instalments. Then it got stolen from my bag at Phakalane mall. Now I have reported it at Phakalane police station and submitted the police report. It's been 4 months and now a lady from the store called me to say that the insurance company has rejected the claim.

This is one of those situations where everything depends on the small print.

One of the very few good things about hire purchase agreements is that they usually include an insurance policy. It's rarely a good policy because it's there to support the company, not you. If you lose your job, it's there to cover the repayments that you can no longer make. However, the conditions are often quite strict. It often only covers you if you are retrenched, not if you resign and not if you're fired.

These policies also cover you against theft of the item, which sounds good, but again isn't always as good as it sounds. I've heard of situations where the claim is denied if you left a door unlocked or gate open at your house and the thieves easily gained entry. Sometimes it doesn't cover you if you are away from home, like you were. It's another reason why it's incredibly important to read the very small print in your agreements and then, to have your own household insurance policy that might cover all the events the store's policy fails to cover.

I'll contact the store and see if they can double check their insurance.