Kevin Milne: Consequences for paying off debts early

By Kevin Milne
*Our son borrowed some money for Christmas from a private lender and has got into a bit of strife. We’re so sorry he didn’t tell us, but now he has a $1500 debt. We tried to pay back the debt as soon as we found out, but the lender told us there are hefty penalties for doing so. Are they allowed to do this?*
If you choose to repay your son’s loan early, you can only be charged a fee that represents the lender’s loss – from unearned interest and other charges. As the lender is usually in a position to lend out that same money elsewhere, the loss should be minimal.
If you are being threatened with early repayment penalties which are greater than the lender’s potential loss, I would be inclined to take the matter to the Disputes Tribunal. If you do take that course, you should keep making the repayments
in the meantime.
Check to see that the lender provided your son with a disclosure statement which details exactly how much the repayments are and states clearly that you have to pay a fee if you make early repayments. Such disclosure statements are an obligation on the part of the lender.
Not issuing such a statement is a breach of the credit contracts and Consumer Finance Act.
This act is administered by the Commerce Commission. Should you require further clarification on your rights, you might want to contact them.

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