Julie and her partner have family in New Zealand, and her parents are in Samoa. The Budgeting Advisor (Financial Mentor) came to know Julie’s relations first, and noted their frequent use of high interest credit. Julie appeared to be the same. She also got herself tangled in her relations’ loans when they sent other people around to her place to tell her how her nieces and nephews could not get to school because the van needed to be fixed. Julie felt she had to agree to be one of two additional guarantors.
In one loan, AROA Loans Company (not real name) had gathered up four people as guarantors, including Julie and her partner as well as the uncle and aunt who owned the vehicle that needed to be fixed. Julie already had $4,000 debt with 2 other finance companies, yet somehow AROA Loans Company managed to convince Julie to make that debt part of an overall $23,000 loan to them. The uncle and aunt had an existing debt of approximately $15,000 with AROA Loans Company, and the van required $2,000 to fix.
The BA noted how many manoeuvres had taken place to get this extended family so deeply in debt when fixing the van to get the kids to school only required $2,000. To start, setup costs for these loans includes a percentage calculation of the overall total of the loan, so AROA Loans Company were gaining money from acquiring the existing debts, as well as the interest on the set up cost, and the interest rate was higher than Julie was already paying. Julie and her partner’s car became part of the security and the APAAP clause (All Present and After Acquired Property i.e. a clause which permits security over everything in the house now and anything acquired in the future)
Is it likely that AROA Loans Company told Julie that this solution was in her best interest? They would have realised that Julie was not knowledgeable about financial matters, and as she was not the one wanting to loan, it was unlikely that she would have done any homework on the terms and conditions and ultimate costs. Would these loans be deemed safe, fair and affordable? Are they legal? Do they meet the conditions of the Responsible Lending Code? AROA Loans Company advertise as being a lot better than others in the same money lending market. But are they?
If the uncle (who owned the van) had continued to be employed and had been reliable, all would have been well, but the chances are small of things working out well when repayments are so high. So many people involved, and so much debt. Julie continued to pay her part of the loan, but when her uncle went into hospital, everything turned really sour for Julie and her partner. They used the assistance of a FM to negotiate repayments, but when they found out that her aunt and uncle were not being chased for their debt, they saw red. The FM asked AROA Loans Company to reduce the required repayments, which they agreed to do, but they also repossessed Julie and her partner’s car and all their household chattels. These had been included as further surety on the loan.
It was hard for Julie and her partner to deal with the huge penalty that was imposed, when at the same time AROA Loans Company had not touched the other party’s van or household goods. Julie and her partner now had no way to get to work, and had to watch their car being sold for $4,000.
Frighteningly, AROA Loans Company were still chasing them. The FM rang AROA Loans Company again, to shame them into behaving less aggressively toward Julie and her partner. After that incident, it has now been 6 months since AROA Loans Company made contact and Julie hopes that her aunt and uncle are now repaying their debt and will continue to do so. In the meantime Julie’s relationship with her partner ended, so they needed 2 cars to get to work. In her stress and panic, Julie went to a different loan shark to get a loan to buy a car to get herself to work so she didn’t lose her job.
The FM has been in contact with Julie and let her know that when this new car loan gets down to $3,000 she could apply for a Ngā Tāngata Microfinance Debt Relief no interest loan. It gave Julie a glimmer of hope to know that it is possible to go somewhere for a safe, fair, and affordable loan. She said that she would work hard to get to that point.
One month after the above interview, Julie had an accident incurring $1,845 in panel beater costs. Stressed once more at not having a car and not being able to get to work, Julie approached Ngā Tāngata Microfinance to ask about a loan. While Julie could pay some of these costs, NTM provided a NILS no interest loan (Family Well Being) to cover the bulk of this cost. She is paying this down as quickly as she can and then will try again to pay back the new car loan quickly. The good news is Julie has kept her job, and she can see light at the end of the awful financial tunnel she has been in. She has learned some difficult and very costly lessons.
Note: all names including those of the loan companies have been changed. Any re-publishing of these case studies need the permission of Ngā Tāngata Microfinance Ltd.