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Balloon payment refinancing declined

Nico purchased a new car for $142,600, financed by a loan from a finance company. Nico agreed to make monthly instalments of $2,700 for four years and pay the balance, a balloon payment, of $60,000 in February 2020.

Nico’s loan was consistently in arrears. The finance company texted, emailed, telephoned, sent letters, and even visited Nico’s address. From time to time the finance company would issue a repossession notice and the missed payment would be caught up, then Nico would miss another payment and again be in arrears.

In January 2020 Nico applied for another loan to refinance the residual debt of $60,000. The finance company said Nico’s account management meant that he no longer met their credit criteria. The finance company also checked Nico’s credit history and discovered that over the last three years Nico had defaulted on a lot of other loans.

The finance company told Nico that if he was unable to pay the $60,000 it would issue another repossession notice and repossess and sell the car.

Nico said the finance company was being unfair and asked FSCL to help.



Nico could not understand why the finance company was not prepared to refinance the balloon payment. He had only ever been one payment behind on his loan and the lender had not told him this was a problem. Nico acknowledged that he had defaulted on other loans but said that he spends long periods of time overseas, that the defaults were accidental, and all the debts had since been paid.

Nico also said that the motor vehicle dealer had told him, when he bought the car, that he would be able to refinance the residual $60,000. Nico said that the lender should not be able to go back on its agent’s assurance that continued lending would not be a problem.

Finally, Nico said that he was earning enough money to easily meet the monthly payments of $2,700 and asked the finance company to reconsider. Nico really wanted to keep the car.

The finance company took another look at Nico’s financial position, but said that even with Nico’s income, he did not meet its lending criteria and it would be irresponsible to refinance the lending.



Under paragraph 8.1(e) of our terms of reference we cannot require a lender to refinance a loan unless the lender has made a mistake, perhaps by failing to take into consideration relevant information or by relying on the wrong information.

We could see frequent texts, emails, phone calls, and letters to Nico in the finance company’s records and found it difficult to believe that Nico was completely unaware that the loan was in arrears. We could also see that Nico did occasionally respond to the finance company.

Even if the motor vehicle dealer had told Nico that he would be able to refinance the balloon payment, we considered any offer of continued finance would be conditional on meeting the finance company’s lending criteria.



We explained to Nico that the finance company had not made a mistake when assessing his application to refinance the residual $60,000 and the finance company was entitled to decline to refinance the residual debt owing.

Nico did not respond, so we discontinued our investigation.


Insights for consumers

Even if you have only missed one payment, if your lender has contacted you about arrears, this is a problem that must be fixed immediately. Your credit history is important and will affect future lending decisions by other lenders.