30.04.2020 Feature Article

# Not All Relief Is A Relief - When The Bank Takes Advantage Of The Customer

If your bank tells you "We are offering you a payment relief of up to 3 months on your loan repayments. Interest accrued during this period will be added to the principal amount and your loan term extended".

If you are in the position to pay your loan now, just do that, and don't accept such a relief. Adding interest accrued to the principal is not a waiver or a relief; it will increase your principal for the bank to make more money from you at the end of the loan maturity. There is no free lunch.

Let's consider a scenario; you contracted a loan of GHC 10,000.00 for a period of 2 years (24 months) at an interest rate of 24% (for the purpose of this scenario, let's apply the reducing balance). You have repaid for 1 year (12 months).

Total interest at the end of 2 years would be GHC 2,689.04. Repayment interest for 1 year is GHC 1,935.88. Now your bank claims to offer you the relief above which some banks are doing in Ghana. If you accept, your repayment period becomes 15 months instead of 12 months.

Total interest you would have paid for the 3 months the banks claim to have relieved you of is GHC 310.30. This interest would be added to your outstanding principal after the first 12 months, which is 5,591.31 and bring it up to GHC 5,901.61.

Same interest rate of 24% would be applied on the GHC 5,901.61 for 15 months repayment period. Interest at the end of the 15 months is GHC 987.89.

Sum the first 12 months interest and the 15 months interest.

1,935.83 + 987.89 = GHC 2,923.72. You would be paying more interest compared to no 3 months relief.

2,923.72 - 2,689.04 = GHC 234.68 (that's how much more you would pay). The 3 months relief is not for free.