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Was my loan affordable?

In October 2022, Hikaru approached a lender for a loan, hoping to consolidate his debts and get some extra money for himself. At the time, he had three other loans to different lenders with total monthly repayments of $1,050. The new lender was able to consolidate these and reduce Hikaru’s payments to $740 per month, a monthly saving of $310. Hikaru wanted his mother, Suki, to guarantee his loan, but the lender only allowed co-borrowers, not guarantors, so Suki was added as a co-borrower to Hikaru’s loan.

Hikaru later fell into serious hardship and was unable to pay his loan. Hikaru then contacted FSCL.

Dispute

Hikaru complained that the lender had breached the Credit Contracts and Consumer Finance Act, and the Responsible Lending Code, by not properly checking that he could afford to pay the loan without suffering substantial hardship. Hikaru said that the lender made mistakes in their affordability assessment, including listing him as having one child when he had two, excluding his weekly MyLotto payments, and including his ‘best start working for families’ payments. Hikaru complained the lender also made mistakes in his mother’s affordability assessment by not looking at whether she shared expenses with him. Hikaru also couldn’t understand how his mother could be a co-borrower when they weren’t living in the same house.

The lender explained that the errors in the affordability assessments were minor and did not change their view that the loan was affordable. They explained that Suki was clearly listed on the document as a co-borrower, and it didn’t matter whether they were living in the same home because they looked at Hikaru and Suki’s incoming and outgoing expenses separately. The lender also explained that Hikaru had taken out other loans since the loan with them, which likely contributed to the hardship he was now facing. 

Review

We reviewed the lender’s file and spoke with Hikaru about his loans and the affordability. We agreed with the lender that, by consolidating Hikaru’s loans, they had put him in a better financial position than he had been in before, and that, even though the affordability was tight, the new monthly loan repayment had been affordable. It seemed likely that the later loans Hikaru took out had contributed to his hardship.

During our investigation process, the lender suggested Hikaru complete a hardship application. The lender offered to reduce Hikaru’s monthly payments to $600 per month.

Resolution

Hikaru accepted the lender’s offer to reduce his repayments, and this resolved the complaint.

Insights

It was clear in this case that it was the subsequent lending that pushed Hikaru into hardship – he was originally able to afford the debt consolidation loan which was the subject of his complaint.

Hikaru had a financial mentor assisting him with his complaint. The mentor said they would talk to Hikaru about whether he wanted to complain about the lenders who provided the subsequent loans, to see whether they had made reasonable affordability enquiries.