Insights for consumers
When taking out a business loan, it is important to understand the total amount that will be repaid and the regular repayment amount. Interest rates can be shown in different ways, which can be confusing. If something is unclear, borrowers should ask questions before signing the agreement. Once a borrower agrees to the repayment amount and loan term, those terms are difficult to change later.
Jade applies for a business loan
In early 2024, Jade, the sole director of a small glazing business, applied for a business loan to help manage cashflow. The lender approved a fixed‑price business loan of just over $64,000. After the lender’s fees were deducted, around $62,000 was paid to the business.
The loan agreement showed that Jade would repay a total of about $83,000 over an 18‑month term. Repayments were fixed at just over $1,060 per week, to be paid in 78 weekly instalments.
Jade believes she is being overcharged interest on the loan
After taking out the loan, Jade became concerned about the interest rate. She said the lender told her the interest rate was 19.9% per annum, but she later calculated that the cost of borrowing equated to an annual percentage rate (APR) of around 35%. Jade believed this meant the lender had misled her.
Jade said the agreement did not clearly set out the finance rate, the lender did not explain the difference between simple interest and amortised interest, and she was not advised to seek legal advice before signing. She said she would not have accepted the loan if she had understood the higher percentage rate.
Explaining amortising loans vs simple interest loans
The primary distinction between amortising loans and simple interest loans lies in the allocation of payments toward interest. In an amortising loan, the portion of each payment allocated to interest decreases over time, while the portion allocated to the principal increases. Conversely, in a simple interest loan, the amount of interest paid per payment remains constant over the loan term. Because of this, the same percentage rate can produce very different results because a 19.9% simple interest rate will usually cost more than a 19.9% amortised rate.
Jade struggles to make the repayments and seeks a solution
By late 2025, Jade had made regular weekly repayments but had also missed some payments and incurred fees. She was unhappy that the lender referred her account to a debt collection agency.
Jade asked the lender to recalculate the loan using a 19.9% per annum amortised interest rate, remove fees, extend the loan term, and change how interest rates were disclosed in the agreement. When the complaint could not be resolved with the lender, Jade brought it to FSCL.
FSCL investigates Jade’s complaint
We considered what was fair in all the circumstances.
This was a business loan, not a consumer credit contract. The lender was therefore not legally required to disclose an APR in the same way it would for a consumer loan.
The lender offers fixed‑price business loans. Under this model, the total cost of the loan is calculated upfront, and repayments are set at a fixed amount for the term of the loan. This means borrowers know exactly how much they will repay each week and the total amount they will pay by the end of the loan.
Was Jade given the correct information in her loan documents?
We focused on the information Jade had when she entered into the agreement. The loan documents clearly disclosed:
- the total amount Jade would repay
- the weekly repayment amount
- the number of repayments and the loan term.
We considered these to be the key pieces of information needed to understand the cost of the loan and decide whether it was affordable. Although the interest rate appeared higher when expressed as an APR, the weekly repayments and total amount repaid were the same. Jade agreed to those repayments when she signed the agreement.
We found no evidence that the lender gave incorrect information or concealed the total cost of the loan. While it may have been helpful for the lender to better explain the difference between simple and amortised interest, FSCL did not consider the lender’s conduct misleading or unfair in the context of a commercial loan.
Was debt collection appropriate in Jade’s circumstances?
We also considered the referral to debt collection. The evidence showed the account was referred before the lender was aware of Jade’s complaint to us. Once told about the complaint, the lender paused further recovery action, in line with our rules.
We did not consider it fair to change the loan term or repayment amount, as this would require rewriting a contract Jade had agreed to.
What was the outcome of Jade’s complaint?
We issued a preliminary decision that the complaint should be discontinued. We were satisfied that the lender had clearly disclosed the total cost of the loan and the weekly repayments, and that Jade understood and agreed to those terms when entering into the loan agreement.
Jade did not respond to the preliminary decision, and the complaint was closed.
