David White / Tips
Last year’s national Covid-19 lockdown has plunged the incomes of many businesses and households. Many borrowers have asked lenders to let them reduce or suspend their loan repayments.
Some borrowers who took a short-term Covid-19 loan repayment “vacation” did not know they would end up paying more interest in the long term.
Susan Taylor, managing director of the Financial Services Complaints program, said she receives complaints when borrowers fail to understand that delaying loan repayments will extend the term of the loan.
As a result, they would end up paying or paying interest over the life of the loan, Taylor said.
The program is one of four licensed financial services dispute resolution programs that people can complain to if they feel they have been treated badly by banks, insurers, financial companies and financial advisers.
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Taylor said in a recent case that a woman complained after discovering the costly inconvenience of a loan repayment leave she was forced to take last year due to a significant loss of revenues during the first national pandemic lockdown.
Bank, Insurer, Lender, Broker or Advisor Wrong You? File with one of the four official financial services complaints services.
The woman took out her loan in 2019 and hoped to pay it off in three years, Taylor said.
But she struggled financially during last year’s lockdown, when her salary was cut in half amid the economic turmoil that followed.
The woman requested repayment leave because she was not going to be able to make her monthly payments, Taylor said.
The first months of the pandemic were difficult for many households, and as of June of last year, around 7% of all home loans were on deferred or reduced payment plans.
Many people with personal loans have also successfully applied for deferred or reduced repayments until their finances have stabilized.
The lender offered to let the woman stop the repayments for three months, Taylor said.
But the three-month deferral of repayment did not prevent interest charges and the loan term was extended by 10 months.
“It wasn’t until later that year that [she] realized that delaying her loan repayments had resulted in an extension of her loan term and additional interest added to her loan balance, ”Taylor said.
The woman asked the lender to revert the balance and term of her original loan.
The lender refused, saying she agreed to the new loan terms, and after investigation, Taylor said the deal was binding on the woman.
The lender had told the woman that her loan would still bear interest as long as the deferral was in place, Taylor said.
He also recommended that she make whatever payments she could afford for the loan during the vacation period.
Taylor said it was important for borrowers to talk to their lenders if they were having trouble, and to make sure they understood the implications of changing the terms of their loans.
“The loan term will be extended due to the deferred loan repayment, and will mean the borrower will repay the loan for longer than originally planned,” Taylor said.