Further fees? Understand your loan repayments

Chris decides to refinance his loan

Chris entered into a credit contract with Perfecto Loans (“Perfecto”) in September 2014 to borrow $13,500. In February 2015 Chris decided to secure finance through another lender and wanted to end his credit contract with Perfecto. Chris asked Perfecto to provide him with the amount required to pay the balance of the loan in full.

Chris believed that Perfecto incorrectly calculated the settlement amount over- charging him $600. Chris contacted FSCL to investigate the calculation of the settlement amount.

 

FSCL’s investigation

It appeared that a weekly $3 administration fee was the reason Chris and Perfecto were unable agree on a settlement amount. Chris paid $121.25 weekly, however, only $118.25 was paid off the loan balance each week. The $3 difference was to offset a $3 administration fee that was added to Chris’s loan balance each week.

Chris believed that interest had been charged on the $3 administration fee.

Perfecto told us that interest had not been calculated on the $3 administration fee. Perfecto also told us that the fees for early repayment of a loan were a $15 settlement fee and a $75 early repayment fee.

To assist the parties in reaching a resolution, we produced a spreadsheet showing:

a)      how interest had been calculated by Perfecto with Chris paying $121.25 per week and a $3 administration fee being charged to the account each week; and

b)      how interest would have been calculated if the $3 fee had not been charged and Chris had only paid $118.25 per week.

The spreadsheet showed that the interest charged was the same. This helped Chris see that he had not been charged interest on the fees.

However, our calculation also showed the correct settlement amount was $12,173.43. Perfecto and Chris both accepted this settlement amount.

We recommended that Perfecto accept $12,173.43 in settlement and give Chris time to make the required arrangements with the new lender.

 

Lesson

The key issue was that Chris thought he was paying $121.25 off the debt each week but because of the $3 fee being charged, he was only paying $118.25. If Perfecto had explained how payments worked at the time Chris took out the loan, or at least at the time he sought the settlement statement, there may have been no complaint.