Bonnie took out a loan for $4,000 in 2016 and the loan contract listed Bonnie’s car as security.
Bonnie didn’t keep up with her repayments and the loan ended up in arrears. To avoid default interest being charged on the overdue amount, Bonnie refinanced the loan with the same lender. She also applied for a further $500, which was approved. However, Bonnie got behind on her repayments under the new loan, and by the time the loan reached the end of its term, she had $5,000 overdue.
Bonnie refinanced the loan again, and applied for another $500, which was also approved. Unfortunately, Bonnie got behind on her repayments again. Bonnie had incurred debts elsewhere, so she spoke to her lender about her situation.
The lender agreed to suspend Bonnie’s loan payments for two months so that she could pay off her other debts. After two months, Bonnie was meant to resume making payments towards her loan. The lender told Bonnie that during the two months, they wouldn’t charge default interest on the overdue amount, but that ordinary interest would continue to be charged.
Bonnie didn’t start making repayments when she had agreed to, and she spoke to her lender about selling her car to pay off the overdue debt. Bonnie also complained about the loan interest rate.
The lender agreed to let Bonnie sell the car for $3,000, but they asked that any potential buyer contact them first, and pay the purchase price directly into Bonnie’s loan account.
Bonnie sold the car for $2,000 December 2019 and the buyer paid her directly. She let the lender know, and Bonnie later paid the $2,000 from the car sale towards her loan. Shortly afterwards, in January 2020, Bonnie told the lender that she wasn’t going to pay the rest of the loan back. Her loan account had $6,000 owing.
Bonnie didn’t make any more payments for a couple of years, but the loan continued to incur interest charges. The lender wasn’t sending regular statements to Bonnie, and by January 2022, the loan balance was $15,000.
Bonnie contacted the lender to complain about the loan balance. The lender agreed to waive all of the interest that the loan had incurred since January 2020 (which reduced the loan to $6,000), but Bonnie wasn’t happy and she complained to FSCL.
Dispute
Bonnie was unhappy about the interest rates on all three of the loans. Bonnie also complained that the lender had not sent her statements for the past two years, and that the loan was affecting her credit score. Bonnie wanted the whole loan written off.
The lender accepted that they should have sent Bonnie regular loan statements, and they agreed to credit all of the interest charged since January 2020. However, the lender did not agree to write off the full loan balance.
Review
We reviewed the loan documents, the affordability assessments, and the correspondence between Bonnie and the lender. We found that all of the loans were affordable for Bonnie when they were approved.
The issue seemed to be that Bonnie was unhappy about all the interest she had been charged. Bonnie said that if interest hadn’t been charged, the total $5,000 loan principal that she borrowed would have been paid back already.
We explained to Bonnie that she had agreed to be charged interest under the loan contracts, and that the contracts clearly explained what the interest rates were. This meant that the lender was entitled to charge interest on Bonnie’s loans.
We explained that the overall interest she had been charged was a lot higher than what the loan contracts set out because Bonnie had not kept to her repayment schedule. The loan contracts allowed the lender to charge higher default interest on overdue amounts. We agreed with Bonnie that the lender should have been sending Bonnie regular loan statements.
We told Bonnie that the lender’s offer to waive $9,000 in interest charges was a generous offer. We explained that, despite their error with the loan statements, the lender was entitled to charge the interest that they had, so the offer to waive $9,000 from the loan balance was more than fair.
We told Bonnie that we thought the lender had been co-operative and accommodating of her situation to try and help her get her loans back on track, and we explained that the information about the loan on Bonnie’s credit file would be updated once she paid the debt back.
We told Bonnie that she would need to pay back the $6,000 remaining on the loan, and we recommended she discontinue her complaint.
Resolution
After receiving our preliminary decision, Bonnie decided to discontinue her complaint.
Insights for consumers
It’s important for borrowers to make their contractual loan repayments – or the interest charged under their loan contract will likely increase. Even when payments are postponed due to financial hardship or a repayment holiday, interest continues to be charged on the loan.
The interest rate should be clearly set out in the loan contract, along with default interest rates for overdue amounts, so borrowers should make sure they read and are happy with the interest rate before signing the loan agreement.
