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Debt Spiral

In 2018, Albert took out a payday loan for $300. Albert soon after faced a number of problems in his personal life and was struggling to make his scheduled repayments. Albert asked the lender to freeze the interest on this loan and made a hardship application. Both of these requests were declined by the lender. By mid-2019, despite having paid $475 on the loan, the interest and arrears resulted in Albert’s loan growing to $1,450. Albert was constantly being contacted by the lender for repayment. All of this was causing Albert a lot of stress. Albert was unable to come to a resolution with the lender and so he complained to FSCL.



Albert felt like he was being harassed by the lender for repayment. He also felt that no matter what he did, the interest kept ballooning. He complained that the lender would not accept any of his proposed repayment solutions. He wanted to settle the loan for $200.

The lender felt they had tried their best to assist Albert, and that they were merely following the terms of the credit contract.



We asked the lender for a full report of its dealings with Albert. We also asked the lender whether they would be open to accepting Albert’s offer to pay a further $200 as full and final settlement of the loan. The lender decided to accept Albert’s offer and to settle the complaint quickly. In the end, Albert paid a total of $675 on his $300 loan. The lender wiped the remaining $1275 off Albert’s loan.



The lender did not accept that they had acted wrongly in the situation, but chose to settle the complaint in order to have it quickly resolved. Albert was happy with this result.


Insights for consumers

Albert’s situation shows how quickly debt can spiral out of control. Payday loans often come with very high interest rates. If not paid off on time, consumers can find themselves paying far more in default interest than they ever expected, or are able to afford.

Borrowers should familiarise themselves with their credit contract and the interest and fee charges applicable on any default payments.