Responsible lending too taxing for some
In July a ‘responsible lending’ discussion paper was released which will help introduce changes to the New Zealand credit legislation. Within days, Napier Family Centre (NFC) received a visit from one woman whose loan agreement with a local lender made us wonder how some lenders view their responsibility.
“Young, free and single, this woman’s life could have easily been turned upside down by some ill-thought out lending. The loan for a relatively small $13,500, before fees, resulted in the client’s mother needing to act as guarantor and secure her house against the loan,” Says NFC spokesperson Suzanne Stewart.
“A loan for such a small amount held against a $215,000 house is excessive,” she says. “Why didn’t they use a car as collateral instead?”
“What was even more concerning to us was that the client would have been left with just $75 per week after rent and the $109 loan repayment to fund food, petrol, power, car and other expenses. That isn’t affordable and the loan company would have known that.”
In addition the loan agreement included some Work and Income debts and court fines which didn’t incur interest until they were amalgamated into the new loan agreement. “That isn’t sensible and this lender acted irresponsibly” Suzanne says.
Under the new legislation lenders have a responsibility to the borrower that, in essence, means they can only structure a loan one can afford to repay.
“That means asking about the borrower’s income, expenses, credit history and personal circumstances,” says Suzanne. “In this situation the client was not asked to provide any information of a budget, what she paid in rent, or for essential proof of her financial situation. This happens all too often”.
Because NFC Budgeting Services became involved before the grace period of three days lapsed a phone call and email put a stop to this loan.
Had the budgeting services team not got involved at the early stage, the borrower would have been liable for $28,340 after interest, over the five year term of the loan plus hefty penalties had she not met the repayments.
Now a happier client has a much more manageable $46 per fortnight agreement in place. With a new and better structured loan through an alternative lender. NFC Budgeting Service is pleased with the outcome.
“Our advice to anyone in a situation where they are thinking of consolidating debts or taking out a loan that sounds too good to be true is…it probably is!” “We recommend talking to a budget advisor first, our services are free, confidential and non-judgmental, so please use them.”
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