Interest applied to the full facility amount
Interest was calculated on the stated loan amount (£18,836), rather than the lower amount actually received (£17,686).
This increased the effective cost of borrowing.
Case Study Two
When a 36.9% loan results in an effective cost of approximately 60–65%
A UK business entered into a short-term lending arrangement through an established platform, based on a stated annual interest rate of 36.9%.
A structured independent review identified that the effective cost of borrowing was materially higher once the full financial mechanics were considered.
Key figures (illustrative)
Stated loan amount
£18,836
Cash received
£17,686
Upfront fee
£1,149
Monthly repayment
£1,900.79
Term
12 months
Total repaid
£22,809
What created concern
The borrower relied on the stated interest rate when assessing affordability.
However, the relationship between:
- funds received
- fees deducted
- repayment obligations
was not fully understood at the time of entering the agreement.
Key observations
Upfront fee reducing usable funds
An upfront fee of £1,149 was deducted before funds were released.
This resulted in:
- reduced available capital
- unchanged repayment obligations
- increased cost relative to funds received
Difference between stated rate and effective cost
While the agreement referenced a 36.9% annual rate, the effective cost - when calculated using actual cash flows and repayment timing - was significantly higher.
This reflects the importance of assessing:
- timing of repayments
- net funds received
- total repayment obligations
rather than relying solely on headline rates.
Illustrative outcome
Cash received
£17,686
Total repaid
£22,809
Total cost
£5,123
Estimated effective annual cost
≈ 60% – 65% per annum
What an independent review would examine
A structured review would assess:
- effective cost of borrowing (cash flow basis)
- impact of fees and deductions
- repayment structure and timing
- alignment between stated terms and actual financial outcomes
- clarity and transparency of disclosures
This case study is anonymised and provided for general information purposes only. It does not constitute legal, financial, or credit advice.
Independent borrowing review services focus on identifying structural features, cost drivers, and areas requiring clarification. Clients should seek appropriate professional advice before making financial decisions.
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