Insights for consumers
When considering an interest-free loan consumers should:
- Always carefully review the terms and conditions before agreeing to any financing offer. It’s important to understand all fees, repayment schedules, and clauses, especially regarding minimum payments or interest rates.
- If anything is unclear, don’t hesitate to ask for clarification. It’s better to be fully informed before committing to a loan or financing option.
- Make sure you fully understand how the repayments are structured. Sometimes, the advertised “interest-free” offer can have hidden details, like minimum payments based on the remaining loan balance or interest to be charged after the agreed interest-free period ends.
What happened?
Isla saw an advertisement on Facebook from a company offering home improvement services (the company) with an option to pay for the services with a 60-month interest-free loan through a well-known financial service provider. The company quoted Isla $15,000 for some work she wanted and offered to help her apply for finance.
After reviewing the quote with her partner, Isla worked out that her repayments would be $250 per month over 60 months. Isla was confident that she could afford the repayment, so she accepted the quote and applied for finance.
However, when Isla received her first statement from the financial service provider, the minimum payment due was $450, which was higher than she expected. When she asked about this, the financial service provider told her that her loan included a term stating that the minimum monthly repayment would be 3% of the remaining amount until the loan was paid in full. This meant that her repayments would be higher at the start of the loan period and would gradually decrease monthly.
Isla said that the company’s staff member did not explain this to her and the higher repayment amount was not affordable for her.
Isla asked the financial service provider to change the terms of her loan and allow her to repay the loan at $250 monthly.
The financial service provider did not agree and said that Isla should have read the terms and conditions of her loan before she signed the agreement. Isla disagreed and complained to FSCL.
What was FSCL’s view?
During our investigation, the financial service provider agreed to change the terms of the loan so Isla could repay her loan in equal monthly repayments of $250. Isla was happy and accepted the offer and we closed our file.
We believed this was a fair outcome because the financial service provider would still receive the full amount within the original 60 months, and Isla would be able to repay the loan with the monthly payments she thought she had agreed to.
