It is a mathematics problem that would scramble the minds of most financial experts.
If one borrows $8,000 at an interest rate of 20 per cent a month, and has paid monthly instalments totalling $76,800, how much longer will it take to clear the debt?
The answer is – possibly never.
This is the quandary one family here is facing after a Licensed Money Lender here refused to renegotiate the terms of the loan.
The result is that even if they continue paying $1,600 every month until the end of time, they would still owe the moneylender $9,600.
The loan comes with a monthly interest rate of 20 per cent, which works out to a 240 per cent yearly interest rate.
It is similar to the interest rates charged to Mr Goh Meng Leong, who appeared in the news last week when a judge quashed one moneylender’s bid to bankrupt him even after he had paid back twice the principal sum.
Such high interest rates charged by licensed moneylenders were the norm before new moneylending rules kicked in last year, capping interest rates at 4 per cent per month. (See report on facing page.)
The family’s troubles began when their father turned to licensed moneylenders to repay gambling debts. It started with two initial loans of about $10,000, made in 2010 and 2012.
When he couldn’t manage the payments, he borrowed more, owing a total of seven moneylenders through 18 loan contracts.
His story was narrated to The New Paper on Sunday by one of his daughters, who wanted to be known only as Yan, 44.
Yan, who is single and living with her father, says: “He thought he could handle the first two loans… He was registered as business partner in a small restaurant so he was able to (get the) loan in the first place.
“As he did not stop gambling and had regular payments to make, it just went out of control. He has no income, so he could not even pay off (the loan even if he wanted to).”
Yan’s family had no idea that he had made those loans until they got repayment letters and phone calls from moneylenders.
When they found out, they confiscated their father’s passport and cut him off his gambling habit.
They managed to clear off several debts for him using their own savings, borrowing from friends and transferring the debts to their own names.
But it was one of the 18 loans – an $8,000 loan contract made in 2012 – that has the family scratching their heads.
They have paid around $76,800 to repay the interest from this loan so far, nearly ten times the original amount loaned.
Yet, the debt is still not repaid.
The moneylender still wanted them to pay back another $9,600 in full – the principal sum of $8,000 and remaining interest of $1,600 – before they can close the books on the contract.
The moneylender was also unwilling to accept instalments for this last $9,600, or restructure the loan contract to fit the new lending rules.
Moneylenders are not obliged to do so, but some do it out of goodwill. (See report, right.)
Yan, a regional sales director at an international company, does not want to reveal the family’s name to avoid trouble with this moneylender.
“Despite having made so much money from us, they still refused to allow us to switch the contract (to a more favourable one). We feel that this is unethical,” says Yan, who earns a five-figure monthly salary.
The seemingly never-ending debts have caused problems for the siblings.
Yan says: “It is tougher for my sister, who has two young children. Her husband does not really know about the financial burden that our father has placed on us… She has kept it away from him. She has emptied her own savings and taken out a loan with a bank.
“She has also cut down on one education plan for each of her children, and there have been no holidays for the past three years, unless it is to nearby destinations.”
As for her father, he declined to speak to TNPS but communicated through Yan that he regrets what he did.
This problem has also left him estranged from his son and his son’s two children, aged four and five.
Yan says: “He has regrets. He has lost the chance to ever be acknowledged by his only son and his son’s children.”…Read more