Think loan provided to me may be classed as unaffordable

edited 8 April 2022 at 7:23PM in Debt-free wannabe
11 replies 1.8K views
ThunderHoofThunderHoof Forumite
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edited 8 April 2022 at 7:23PM in Debt-free wannabe
Hi, I was provided a £3,500 loan last Nov for debt consolidation purposes because I was struggling to meet the minimums and to give me a bit of cash as breathing space.

It was a staggering 93.6% APR, 48 payments of £210.44 a month for a total repayment of £10,101.12. In hindsight this was a stupid loan to take out but my mental health issues among other things impact on my ability to manage finances properly.

Below is what I owed and how much my monthly payments were at that time, Halifax was an overdraft, the rest were credit cards. I'm not sure what my balance on the Fluid and Capital One cards were at the time of the loan so I just put the max credit limit so as to be as generous as possible to the loan company in terms of how much my card payments would reduce.

Halifax £1,450 49.91%, minimum payment, 3.37%? ~£48.90 
Newday £3,141.72 24.684%, contractual minimum payment, interest + 1% of remaining balance ~£111.29
Virgin £5,803.60 20.01%, contractual minimum payment, interest + 1% of remaining balance ~£156.64
Fluid £450? 35%?, contractual minimum payment, interest + 1%? of remaining balance ~£17.63
Capital One £200? 35%?, contractual minimum payment, interest + 1%? of remaining balance ~£7.83

Now assuming that all £3,500 was used to pay off the highest interest debts, that would be Capital One, Fluid, Halifax completely paid off and Newday reduced to £1,741.72 so monthly repayments for that card would then be approx. £53.24.

So I would no longer be paying £7.83 + £17.63 + £48.90 + £58.08 = £132.44 so the loan has actually increased my debt payments overall by approx. £78 per month when I was already struggling to meet the minimums and had no cash, plus it has given me thousands of additional debt due to the much higher interest rates. The loan company even sent a cheque directly to fluid to pay off the card because they were said they were concerned about how affordable the loan would be for me. Does this not raise alarm bells?!

As a result of all this I have had to enter a debt management plan with StepChange paying £300 a month, to the debts listed below, bearing in mind I have already paid £862.28 towards this £3,500 loan I am showing a balance of £9,238.84!

Creditor - EVERYDAY LOANS LTD
Monthly Payment - £115.48
Current Balance - £9,238.84

Creditor - VIRGIN MONEY CREDIT CARDS
Monthly Payment - £95.11
Current Balance - £5,645.30

Creditor - NEWDAY
Monthly Payment - £49.63
Current Balance - £2,993.57

Creditor - HALIFAX PLC - OVERDRAFTS
Monthly Payment - £39.78
Current Balance - £1,412.32

The overdraft defaulted straight away when I entered the DMP and the credit cards are on a 0% breathing space plan at the moment, but Everyday Loans are being inflexible considering the circumstances.

Does it look like I may have a case to argue that the loan given to me was unaffordable because it increased my monthly payments when I was already struggling to meet the minimums and that it was not appropriate for debt consolidation as it substantially increased my overall debt, and that they failed to take into account my diagnosed psychiatric conditions regarding my ability to manage my money appropriately?

Would really appreciate any advice on what further steps to take next, StepChange have been in contact with Everyday Loans and they haven't reduced the interest as far as I can tell, they suggested contacting the loan provider directly to see if I could sort anything out. So should I contact Everyday Loans with a breakdown of costs and try to argue that it was unaffordable and negotiate a significantly reduced rate at the very least?

If push comes to shove can I just stop paying them in the hope that they will default it? I mean what would the worse case scenario be, they pay hundreds to take the case to the County Court, and if the court disagrees with me that the loan was unaffordable I get ordered to pay it back at what I'm already paying them now anyway and get a CCJ which will fall off my credit file at about the same time the defaults from the other 3 lenders do?

Please tell me if I'm missing something obvious here.
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  • sourcratessourcrates Forumite
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    Yes you can make a claim for unaffordable lending, but its not about whether it increased or decreased your monthly payments, after all that is what consolidation does normally, its a bit of a double edged sword, as you would have to show you made the lender aware of your mental health issues, as its not something you would usually disclose.

    You should not be paying them any amount that is unaffordable to you, even when legal action is taken, the court sets payment according to your disposable income available, not on the merits of the claim, that is not their role.

    Debt Camel cover`s the complaints process here -

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  • enthusiasticsaverenthusiasticsaver Forumite, Ambassador
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    Debt consolidation never works and certainly that interest rate is criminal. I would follow sourcrates recommendation to complain and if they haven’t stopped charging interest I see no advantage to paying it back through a DMP. Assuming it is unsecured I would stop payments. You can still include the other debts through the DMP. You want the loan to default ASAP. 
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  • edited 9 April 2022 at 4:49PM
    ThunderHoofThunderHoof Forumite
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    edited 9 April 2022 at 4:49PM
    Yes you can make a claim for unaffordable lending, but its not about whether it increased or decreased your monthly payments, after all that is what consolidation does normally, its a bit of a double edged sword, as you would have to show you made the lender aware of your mental health issues, as its not something you would usually disclose.

    You should not be paying them any amount that is unaffordable to you, even when legal action is taken, the court sets payment according to your disposable income available, not on the merits of the claim, that is not their role.

    Debt Camel cover`s the complaints process here -

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    Thanks very much. Does a lender not have a duty to ask about the reason the debt came about i.e. mental health issues?

    I have sent them the below letter.

    Everyday Loans Ltd
    1st Floor, Guildhall House
    Guildhall St
    Preston
    PR1 3NU

    8 April 2022

    Dear Sir/Madam,

    Account No: ****************

    I would like to make a complaint against your company. The details are set out below.

    On 08/11/2021 I took out a loan of £3,500.00 with you.
    I was provided a loan primarily for debt consolidation purposes because I was struggling to meet
    the minimum payments towards my existing creditors.
    Below is an estimate of what I owed to creditors, their interest rates and roughly how much my
    monthly minimum payments were at the time of the loan agreement.

    Halifax - £1,450 - 49.91% - minimum payment £48.90
    Newday - £3,141.72 - 24.68% - minimum payment £111.29
    Virgin - £5,803.60 - 20.01% - minimum payment £156.64
    Fluid - ~£450.00 - ~35.00% - minimum payment £17.63
    Capital One - ~£200.00 - ~35.00% - minimum payment £7.83
    The monthly repayments therefore totalled approx. £341.84.

    Now assuming that all £3,500 of the loan was used to pay off the highest interest debts, I would
    no longer be paying Halifax, Fluid, and Capital One any repayments and my repayments to
    Newday would be reduced making my monthly payments to creditors the following amounts,
    £7.83 + £17.63 + £48.90 + £58.08 for a total of £132.44. But reducing my unaffordable card
    payments to £209.40 and then adding a loan repayment of £210.44 per month has the net effect
    of increasing my monthly debt repayments to £419.84 making them even more unaffordable.

    Everyday Lending even initially sent a cheque directly to Fluid to pay off the card citing
    affordability concerns, this demonstrates that as a creditor you were not confident this loan was
    affordable for me.

    Furthermore no consideration was given to my mental health and diagnosed psychiatric
    conditions which affect my ability to manage money and which were the primary contributors to
    me owing so much debt in the first place.

    As a result of this loan I have had to enter a debt management plan with StepChange bearing in
    mind I have already paid £862.28 towards this £3,500 loan I am still showing a remaining
    balance of £9,238.84.

    Everyday lending have not agreed to reduce the total amount of interest payable on the loan
    despite my circumstances being explained to them by StepChange, this is in contrast to other
    creditors who were much more understanding and froze interest.

    Because of the higher interest rate charges compared to the creditors you replaced, this loan has
    given me thousands of pounds of additional debt over the proposed 48 month period making me
    more indebted.

    This has also exacerbated my existing anxiety and depressive disorders.

    I would like Everyday Loans to freeze interest so that I can pay the loan back within a sensible
    time frame, considering that I have already paid back £862.28 of the £3,500 loan there is still
    scope for Everyday Loans to make a significant profit on the loan without having to bankrupt
    me.

    If you fail to resolve my complaint within 8 weeks, or if matters are not settled to my
    satisfaction, I will have no alternative but to refer my complaint to the Financial Ombudsman
    Service.

    Please do not respond to this letter by telephone. Written communication by either email or
    postal letter is acceptable.

    I look forward to hearing from you.
    Yours faithfully
    ************

  • SncjwSncjw Forumite
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    But did you make the lender aware of mental health issues. 


  • Rob5342Rob5342 Forumite
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    Debt camel has am article.you.mind find useful here:

    https://debtcamel.co.uk/debt-mental-health/If they haven't taken your.mental health into consideration after you told them about it then you'd have good grounds to complaint. If you haven't told them about it and there was nothing you did to indicate it then thow are they to know?

  • edited 10 April 2022 at 3:22PM
    ThunderHoofThunderHoof Forumite
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    edited 10 April 2022 at 3:22PM
    Well by asking... how the person got into debt is a pretty major factor in determining affordability.

    Anyway the mental health thing is not really the main issue here, it's the fact that the payments weren't affordable.

    That link says page not found unfortunately.

  • Sea_ShellSea_Shell Forumite
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    If they'd have asked about your mental health, but then turned you down, what would your alternative strategy have been, at that moment (not with hindsight)?
    1984 is being moved to the non fiction section.
  • edited 10 April 2022 at 3:28PM
    ThunderHoofThunderHoof Forumite
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    edited 10 April 2022 at 3:28PM
    Well I certainly couldn't have taken out a loan because they were the only lender on the market willing to potentially offer me one because of my credit record. So this additional debt would have been avoided!

    Have no real assets so would possibly have looked into bankruptcy which would put me in a better financial position than I am now with this loan.
  • ThunderHoofThunderHoof Forumite
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    Debt consolidation never works and certainly that interest rate is criminal. I would follow sourcrates recommendation to complain and if they haven’t stopped charging interest I see no advantage to paying it back through a DMP. Assuming it is unsecured I would stop payments. You can still include the other debts through the DMP. You want the loan to default ASAP. 
    Yes, it's unsecured, I have asked StepChange to stop payments when I get to £3,500 repaid until I come to a sensible agreement with Everyday Loans. I'm perfectly happy paying back what I have borrowed and then some via interest, but this loan was just not in my interest and exploitative at the current interest rate. There needs to be more regulation to stop these lenders offering unaffordable loans and not doing checks on basic factors that affect someone's ability to manage money. A DMP with my existing creditors or even a debt relief order would have been much more appropriate for me than this loan.
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