A colleague told me that in 97/98 he was granted a loan of 90k for home repairs. He drew down only 10k but was charged interest on 90k. He called the bank who said this was in line with the small print on their contract, which it was. So my colleague then asked for the other 80k and was denied it. They finally agreed to put the remaining 80k in deposit.
Has my colleague any comeback on this? Surely he shouldn’t have had to pay interest on the 80k?
So he borrowed 10k initally and kept borrowing as his house required the money. Within a year he has drawn down the total 90k. So as an estimate he paid 5%*50,000 for 1 year MORE than (i think) he should have).
They put the balance on deposit with themselves, at a lower rate than the loan. My colleague did not have access to the cash untill it was required for the building works.
This normally only happens if the loan is on a fixed rate, with the rate being fixed at initial drawdown. The lender's justification is that they have to fix the loan at the rate then in force, so they are incurring the cost from then. A weak enough argument, but there is some small logic to it.
The scenario described should never happen in a variable loan situation.