Leap year loan interest

[13m]

We've recently moved some commercial finance to a new bank and yesterday they wrote to me saying that they want extra interest because it's a leap year.

Our loan agreement says that the interest is a X% over base rate and that it is calculated on a 365 day year. To my mind therefore leap years are "in the price" and no extra should be charged.

Anyone else come across this?

[Sharted]

Seems a good wheeze.

I'd respond by saying that I'll make my monthly payments on the 29th day of the month only in future.

[13m]

Sharted said:

Seems a good wheeze.

I'd respond by saying that I'll make my monthly payments on the 29th day of the month only in future.

The tone of the correspondence does come across like it's something they have just thought up.

[Sharted]

The finance sector is full of managers and consultants looking for little schemes such as this to justify their salary or fees, I've dreamt up a few myself over the years.

Does it make a big difference to the annual interest bill?

[13m]

Sharted said:

The finance sector is full of managers and consultants looking for little schemes such as this to justify their salary or fees, I've dreamt up a few myself over the years.

Does it make a big difference to the annual interest bill?

A few hundred quid. But it wouldn't matter if it was a tenner, as far as I am aware if the terms of the loan are that interest is calculate on a 365 day year, that's how the loan should be calculated.

[Kudos]

what did the T's & C's of the original contract state?

If not listed in there, tell them where to go.

"a few hundred quid interest" for an additional day, must have been some sum in the first place!

[gibbon]

It will be in the loan structure terms, i would imagine its, as you say, 365. Check terms and tell them to poke it.

[13m]

Kudos said:

what did the T's & C's of the original contract state?

If not listed in there, tell them where to go.

"a few hundred quid interest" for an additional day, must have been some sum in the first place!

"We will calculate the interest on the Loan on a daily basis and on the basis of a 365 day year".

No mention of leap years as far as I can see.

[Kudos]

13m said:

"We will calculate the interest on the Loan on a daily basis and on the basis of a 365 day year".

No mention of leap years as far as I can see.

There's your answer then

[Ozzie Osmond]

This is an interesting link covering exactly the OPs situation in 2012, which was the last leap year.

http://www.thearamcogroup.com/Blog/bid/126773/Does...

At the simplest,

• If your interest is calculated as x% per year, payable monthly, then a leap year makes no difference.
• If your interest is calculated as a daily rate of x%/365 then in a 366 day year you will owe an extra day of interest.

[Roger Irrelevant]

13m said:

"We will calculate the interest on the Loan on a daily basis and on the basis of a 365 day year".

No mention of leap years as far as I can see.

It's not clear either way. If the interest is expressed to be x% per year, then in conjunction with the above it could be taken as meaning that interest racks up at the rate of the 365th-root of x% per day (assuming it's done on a compound basis). If that is the correct interpretation, and to be honest I think it probably is (why even mention the 365-day basis if it's a straight x% each and every calendar year?), then you will pay more in a leap year. It's not great drafting though and worth arguing over.