Interest ‘slogging’ contractors

Press, 12 August 1985, Page 5

Interest ‘slogging’ contractors

PA Nelson Increased interest on hire purchase agreements is “slogging” big borrowers, says Mr Graham Hosie, secretary of the NelsonMarlborough branch of the Contractors’ Federation.

Mr Hosie, an accountant, said on Saturday that it was the first time to his knowledge finance companies had altered their interest rates during the term of a contract.

“It’s quite common for home mortgage lenders to vary the rates as interest levels change in the market place but it’s the first time I am aware it’s been done in hire purchase agreements.” Mr Hosie said he had received four queries from contractors with big items of plant involved who had been told their instalment payments were to increase forthwith. Usually in financial trans-

actions where a variation was proposed the borrower was given at least a month’s notice to prepare for the increase, to make other arrangements or to even pay off the debt, he said. In one case he was investigating the borrower had been given only a week’s notice. Mr Hosie said that with contractors large sums were involved to buy plant, often over five years. There was a clause allowing an interest variation in contracts but borrowers appear to have been told not to worry about it because it has not been acted on before.

“Sadly, I believe the borrowers may be locked in to their contracts because of a financial regulation called the rule of 78. “This extracts a large proportion of the interest due over the total period in the first year.”