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Why am I paying more towards my loan, but my balance is not decreasing any faster?

The repairs 

In late 2012 Patrick had some mechanical problems with the vehicle he had purchased with a loan from his finance company. 


Patrick spoke with his finance company and it agreed to extend his loan for the cost of the repairs (around $2,000). Patrick increased his payments from $130 per week to $150 per week with the view that the extra $20 he paid per week would be paying the cost of the repairs over time. 


The misunderstanding 

There was some misunderstanding when Patrick made the arrangement to extend his loan to cover the cost of the vehicle repairs. 


The finance company thought Patrick had understood that the arrangement he had entered into was that the finance company would debit $20 per week to his account, and place the funds into a savings scheme the finance company ran. The scheme’s aim was that there would be funds available to Patrick should he need to have any repairs done in the future. 


This meant that the extra $20 per week Patrick was paying was not helping to reduce the balance of the loan. 



Patrick contacted FSCL in December 2013 to seek assistance in getting the matter resolved. We opened an investigation of the complaint after referring the matter to the finance company’s internal complaints process failed to resolve the problem. 


The finance company reviewed the complaint and offered to credit to the balance of the account all the $20 debits for the savings scheme which the finance company had made over the previous 13 months. This amounted to around $1,120. 


The finance company also agreed to stop debiting the $20 savings scheme amounts in the future. This meant Patrick would have no recourse to any funds if he needed any repairs done in the future. Patrick was happy with this outcome and withdrew his complaint. 


Lesson to be learned 

It is always a good idea to get a regular statement from your finance company to check the status of your account. Finance companies are not currently required to send out regular statements, and may charge a fee when you request one. However, it is probably worth doing this so that you can regularly check what is happening with your account.