Minka contacted the bank, which offered to shorten the loan term. However, the bank said the lending would remain secured by three vehicles previously offered as security. Minka complained that the bank had not disclosed the interest implications of the longer loan term and had incorrectly registered security over one of the vehicles, preventing her from selling it.

Our investigation

We found the bank had properly disclosed the loan terms and given Minka a repayment schedule. It had correctly apportioned repayments between interest and principal. In a reducing loan such as the one Minka had, a bank applies more of a customer’s repayments to the interest, but as the loan balance reduces and less interest is payable, more of each repayment goes towards repaying the principal. The loan agreement made clear that a longer term would result in her paying more interest. It also clearly stated that the term could be shortened at any time. However, we found the bank had no valid security over the third vehicle. The previous company had agreed to the vehicle being held as security, but that company had repaid its lending and no longer owed any obligations to the bank. We could find no evidence that Minka had agreed to the vehicle being used as security for the new loan. We accepted that she had been inconvenienced by her inability to sell the vehicle.

Outcome

We recommended the bank remove its security over the vehicle and pay Minka $1,000 for the inconvenience. The bank and Minka accepted our recommendation.