Have an almost 20 year old and he is paying for a car loan (personal loan - as far as I know not secured) he is paying $150 a week in repayments, and has just lost his permanent full time income that allowed him to borrow $22,000 so I am wonder what is the best option for him with only a part time income at he moment and barely managing to make his payments, we spoke to CBA but they have not offered anything.
Son has loan with CBA pesonal loan and repayments are $150 a week
bsk on 11/02/2014 - 16:08
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it's not a stupid decision if the son had been employed with the company for a while so as to ascertain some sort of job security to enable him to make a decision to buy a new car. At 24yrs old, I purchased a brand new 35k car that I still own today. I paid it off within 5 years and I had a life as well. If you work hard and have the motivation, then fear of losing an employment should not stop you getting what you want (pessimists don't go anywhere, optimists have a lot of fun!). There's plenty of jobs that pays more than $150 per week after tax with spares for rent and beer!
Suggestion is to immediately get Newstart allowance while looking for a job. Your son was a taxpayer and now its his turn to benefit from newstart until he can go back to being a tax contributor.
Stupidity aside, CBA should have some sort of hardship provision to stop the repayment for a month or three while interest will keep getting applied.
Sell the car at a loss, mum and dad chip in the shortfall and pay off the loan in one go. There's nothing an AU wagon on gas can't do…..
Search for "CBA financial hardship" and you will be able to get more info their site.
Depending on what your relationship is like with your son be careful you draw up some sort of legal contract for repayments or you may never see the money.
thanks, yes, not keen to pay for him, as I do not think he will learn the lesson he needs to learn here. But it is hard to watch him miss the occasional payment, and struggle to make it work, he sold the car for a big loss and still owes around 1/2 of it, but as the bank keeps telling him he can reuse the credit paid (it seems to be like a line of credit) he keeps taking a bit and not realizing how it is adding on. Wonder if there is a cheaper option loan and when he went to ask the bank suggested a credit card with no interest for 12 mths, is that an option? And only if he pays it off not borrows more…. not that I have any control over that happening. :-)
Too bad, he's already an adult so he has to manage his own financial affairs.
There's always Fox Symes and similar vultures.
I agree but a bad credit file will hurt him in the future. If no other option try your best to help him out. He will still learn his lesson if you make him give you a foot massage every week for saving his butt!
12,000 debt should be around $60 a month interest.
If its a line of credit, they are in no rush for the money.
Yes the debt has to be repaid, but him getting back into fulltime employment is most impoetant.
The loan doesn't sound secure ie they are saying he can borrow more against nothing.
Throwing him another credit card would be like giving Dracula a job at the blood bank.
Disclosure - I work for a rival bank
$60 per month would be $12,000 @ only 6%??? If unsecured line of credit It would be more like 17% hence $170 interest per month on $12000 line of credit. As repayments are 150 per week that sounds more like it was originally a $22,000 principle and interest loan @ around 14% over 5 years???. If CBA are suggesting re-borrowing (and considering he is paying weekly) he may have some redraw available to use. I would see if CBA will hold some repayments (using redraw amount) giving some extra time to find more work.
Or
if it is a line of credit the repayments may be something like - interest plus fees plus (say) 2%. If so he can re-spend the 2% after making the repayment and effectively only pay the interest plus fees. It would also mean he has approx $10,000 available to respond (if original limit $22,000) which is dangerous considering his circumstances but on the flip side he could transfer the repayment amount out of the line of credit and back in again to make his repayment. Problem is if he does not get back to full time work he will end up with $22,000 debt instead of $12,000.
Like the Dracula comment, thanks ilostnemo - so it looks like he may be paying more than $60 interest, as the repayments are $150 a week and he doesn't think that pays much of the principle, so will have to look into that although with 'privacy laws' they are not going to tell me anything. still looking for a cheaper repayment option if anyone can suggest anything happy to listen.
so it looks like he may be paying more than $60 interest, as the repayments are $150 a week and he doesn't think that pays much of the principle
Check the bank statement to find out what the interest rates are
still looking for a cheaper repayment option
I don't think there is many options aside from you loaning him the money. It would be hard for him to apply for another loan elsewhere even if it did have lower interest rates
Just check they did not include consumer credit insurance with the loan. Normally a bank will try their best to sell it with the loan and it would most likely help a great deal in this situation (depending on the circumstances of his dismissal).
Mmmm getting rather confusing and yes, he did have an original loan of $22000 then came down when he sold his car, but is back up around $16000 due to impulse spending. I am wondering if the bank could/will change loan to what is owning now and reduce the payments to say $100 per week as he is not disciplined enough and they keep sending him letters to say here it is come and get it. Even without permanent work I think he could find $100 per week, but $150 is not easy.
To be honest, that is pretty pathetic. He is an adult, and if he is old enough to get a loan in the first place, he needs to be smart enough to be disciplined. Its pretty clear cut, he borrowed money, he needs to pay it back. He does not deserve any special conditions or help, he needs to live with the consequence of his actions.
At 20 years old he is a big boy now. If you keep helping him then there will be no need for him to take any action. Even if the bank would change the loan from being a redraw facility there remains several questions; would he change it and would the bank change it if you requested it. Both seem unlikely. Bankruptcy may be an option, unlike herpes it's not forever.
Apart from this there have been some very good suggestions but most rely on his willingness to take action. He seems determined to maintain his standard of living by borrowing even when he has a limited income. If you take any action it must be to terminate the loan completely and the redraw facility so that things cannot deteriorate again. You could advise the bank he is unemployed. They may take action to limit the borrowing.
The above may seem tough. I have been through exactly what you are now and you need to protect yourself even if you help out.
Check if the bank has included unemployment insureance as part of the loan contract?
many years ago a car loan I had automatically came with insureance against unemployment for up to 12 months of payments; Ya never know and banks may not want to draw attn to the inclusion if available?
Shanny
"original loan of $22000 then came down when he sold his car, but is back up around $16000 due to impulse spending"
Impulse spending? Time to Grow up and learn a lesson. Bad credit? So be it. He'll be better off in life overcoming that in the 5 yrs it stays on file than he will be by being bailed out of it by you.
BSK, if you love your son, kick him out if he isnt contributing for rent, food and utilities… The debts not your problem and if that means after getting off the family gravy train he has to decalr bankruptcy then thats HIS problem too.
He WILL learn a life lesson, nothing is free & if you do this he can come still back and become a millionair yet, but cuddle him thorugh this and he will end up living at home in his 40's asking you to die soon to pay for the kids he will have that he isnt allowed to visit because he is a LOOSER (women, even stupid ones will work this out)…
If you realy hate him, pay it off, bet you be does it again within say a year or two… rinse and repeat
Look, if he is sick or needs medical assistance then pay it off, do whatever is nessary but the young now just live to work a day, loan off someone and then cry poor while they keep spending (parents have a lot of blame here as baby boomers flash wealth around trying to buy companionship on thier dotage) but thats not how wealth is made, nor what/how you spend it even if you do have some cash…
I feel for you, every post has a story but you know the example this will have on your other kids - if you think this is bad wait for the next one if you dont act like a gorwnup in dealing with this…
Definitely agree with most that this was a very bad decision.
I see a lot of people talking about interest here. You will need to check as I'm sure CBA will charge you interest even if you pay it off as a lump sum.
Extract from CBA website: An early repayment adjustment may be made for the loss the Bank expects to make due to the loan being repaid earlier than anticipated.
If this is the case for your son's loan - letting him pay it off over time may be the best option as the interest is unavoidable.
If there is no early repayment adjustment fee for the loan - you could pay it off for him if you have the capability (your own savings - refinance on your home) and then get your son to owe you.A credit default will last 5 years (Unless they obtain a Judgment). Yes it is a long time but I don't see your son getting himself into another loan so soon after this doozy.
I think you have answered your own question really. Your son needs to learn a lesson here. Let him continue to do it tough and pay what he needs to pay. This might be a lesson far more valuable to learn now.
Advise him not to take any more debt on, just try to clear it.
He will come out the other side a far better and wiser person.
Parents don't like being told when they are wrong and you know what your choices are you just don't like your options and no one here is going to come and do it for you.
Your son needs freedom to become his own adult. Your job was to guide him to become his own person, now he must experience the consequences of his life and his decisions.
This is the exact expertise and purpose of a counsellor, your just playing a game of "…..yes but". Go see a counsellor.
In the eighties I was 20yo and 80K in debt after a failed business venture. Interest rates on my 3 unsecured loans were around 20% with one actually 25%. I worked 3 jobs, a day time clerical job (mailroom boy), at night I worked in a service station and on weekend I cleaned toilets and sold all my assets (car, furniture etc) just to cover the loan repayments and after 3 years of meeting my minimum loan payments I owed more than when I started. I did this for years gradually applying for and getting slightly better paid jobs so I could pay back more than just the minimum. Interest rates on two of the loans slowly came down to a point where a bank would finally allow me to consolidate the loans which allowed me to finally get on top of everything. I was determined to be responsible for the debt I incurred and refused to declare bankruptcy. All up it took me 13 years to pay back my debt
My advice is don't let him be precious about the type of work he wants, tell him take the type of work he needs whether it be cleaning toilets, working graveyard shift at a service station, odd jobs around the neighbourhood, kitchen hand etc etc.
I am all for the "tough love" approach, but I feel it is important that the consequences of his mistake don't go for too long (decades) or lead to long term financial consequences (bankrupt, bad credit rating).
There should definitely be consequences to the mistake, but it shouldn't have too many consequences either.
No two people are the same — so I don't believe that the idea of "bad stuff happened to me therefore it should happen to everyone" is true. I also don't think that everyone has the same risk assessment ability and financial sense. So even if he had all the consequences of this mistake, there is no guarantee that he'd fully learn from the experience. Plenty of people take out loans to purchase vehicles — but how many people run in to severe financial hardship and are unable to service the loan?
Reminds me of the gfc and moral hazard.
CBA was NOT known for it's good behaviour when thousands of Storm Financial 'clients' lost everything when it was proved the bank was complicit in it (And BOQ and other organisations who made a profit from others abject misery). Sorry, I don't have any practical ideas on how to handle it. If your son goes to CBA himself, suggest an experienced adult goes with him to make notes and act in your son's interest if necessary.
Here's another idea - go crack a whinge with their Customer Relations dept and more often than not, they will do something especially if they find themselves ever the slightest wrong how they carried on.
https://www.commbank.com.au/contact-us/compliments-complaint…
Write a letter, get your son to sign it and see what they say. They might even refund all the interest paid if you push hard enough. Then again your son's an adult and you should only provide guidance on how he should spend his money.
Merged from Loan Advice for My Son - He Has $20000 Owing to CBA
Son is paying 17.9% interest on his loan and I wonder if there is a better option. He has casual work but can definately afford his weekly repayment of $150. I am not sure if he can change it as he has no employment history to show? Any suggestions would be great, just want to see him get out of debt quicker.
I am guessing his loan is an unsecured personal loan. If you put some security behind his loan, you might be able to half the interest rate. If he doesn't have any assets, you might have to put up some of yours and become guarantor. :)
ok yes he would have a car to secure but that would not cover the full $20000, but maybe we could put some other equity together for him. thanks
2,000 or 20,000??? Massive difference
It originally was $2000, now its $20,000!
I doubt a car could be used against a personal loan. It would usually only be used against a car loan. A car is more a liability rather than an asset as it reduces in value constantly and has high upkeep and maintenance costs.
One way of getting it at home mortgage rates would be to combine it with your own mortgage provided there are no re-finance fees for your mortgage. If you have an offset arrangement or a line of credit situation with your current mortgage then getting an extra 20,000 paid out should be fairly easy. You would then have make arrangements so that your son can pay an agreed amount into your mortgage account.
The bank would definetly accept a car as security against a unsecured loan, you would not offer it unless they reduced the interest rate though. If your son has a good repayment history and credit rating he may be able secure a loan from another institution at a better rate with regular casual work from the same employer. The problem is though you do not want to run up lots of credit enquiries trying to fix the problem.
The bank would definetly accept a car as security against a unsecured loan
Wouldn't this depend on what car you have? I doubt a bank would want a shit 1988 Daewoo charade
OP - is your son owing twenty or two thousand dollars? Quite a large difference :)
sounds like 20k, if his car wouldnt cover it, and the weekly repayment is 150.
Can you organise a bailout package for him and pay his debt?
sorry have edited it and it should have said $20000 thanks
Get a credit card with 0% interest balance transfer. Citibank or Westpac have such deals on atm.
and then cut up the card (so he cant use it to spend more), and pay off the balance there.
Wouldnt you have to then pass their lending criteria?
yes.
or the parents could get it if they want to assist.
What happens with 0% transfer? Your monthly payments are without interest anymore? Sorry if this is a stupid question.
Yes, you only have to pay the minimum amount payable each month, which is usually ~2% of the outstanding balance.
The outstanding balance will not accrue interest for the 0% period.Then once the 0% interest finishes, it will revert to the normal rate. (which is generally quite high, so try to smash as much of the balance as u can during the 0% period)
@DealzEddy123: Your credit history and ability to service the loan.
So generally you current debts, your current salary/wages, and your borrowing history.
Also be aware of any annual fees on the cards though.
Also to get a credit card limit of $20,000 I'd say you need to be earning at least 65k
@DealzEddy123: And finish all the debt before the Interest Free Period is over, otherwise the full outstanding amount is backdated and charged the high interest from Day1!
@DealzEddy123: @eagleanthony: wow srs? not from the day the interest free period ends?? then it's not really interest free? it's more like interest delayed…
Read the fine print, but often these "interest free" deals to be interest free have to be fully repaid before the time is up.
Secondly, if you have any balance owing (i.e get some new spending), any money that gets paid off the CC goes to the least profitable bit for the bank (or the highest cost for you!)
Check it out, read the fine print.
I think or know you are wrong on a few counts.
It's a monetary rule that the highest interest debt is paid off first. So any new spending (which has a normal interest rate, but don't spend extra) is paid off before any 0% balance is paid off.
Also they do not backdate your debt. You just can't do that as a normal lending or banking institution.
I don't know who you borrow from…
@DealzEddy123: @diddy50:
Last time I checked, eagleanthony was correct on all accounts. Maybe they've introduced laws to stop this now?? In any case, a credit card is a terrible idea to try to resolve a debt problem. It delays for a period, then you're in a worse situation than ever.If you choose not to repay a dollar in the interest free period, then you will be charged the prevailing interest rate from day 1. Or 20%.
On a 2 year I/free loan, this could mean that $20k for 'free' can explode to over $28,800! Not so cheap.
My advice, Check it out! It's a changing space!
What's his income and how much could he afford to pay each month to reduce the debt.
as he works as a casual employee it is hard to judge, but I guess mostly it is between $600 - $800 thanks
he racked up $20k debt when he's earning $600-$800p/m?
Geez he's done well.
I assume she meant per week.
yes sorry per week
yes you have got to love the CBA not…. grrr they lent him almost $25,000 at 18years as he had worked for 18mths with income of around $500 - $600 a week, so we as parents said off you go and ask the bank will not give it to you…. and they did
there's nothing wrong with that.
debt isn't a bad thing. It's how you manage itand in this case, it's a bad thing.
@SlickMick: not really… he owes a debt… he may well have it under control and the parent is just freaking
Sorry but how can you blame CBA for giving him the money ?
How can a responsible institution loan that much money to person who has little capacity to pay it back, also being unsecured it is a higher risk to the bank that they may never get it back and have nothing to show for it to reduce it…
Written off debt is bad debt.
Not a good look for banks.
It's money lost.@diddy50: How can a responsible parent allow their child to loan that much money who has little capacity to pay it back, also being unsecured it is a higher risk to the family that they may never get it back and have nothing to show for it to reduce it…
I blame the CBA. I blame them for giving him 20k for a car and other buys when he was on a low pay and nil savings. Totally blameworthy. Banks prey on bad decisions. The CBA did.
@diddy50: the thread merged and it all makes senses now. OP's son had a FT job, took out 25k then lost his job.
Must be the bank's fault.
@tomleonhart:
it is not the bank's fault
I just see there should be a responsibility to lend out money with the security that it will be paid back, otherwise it is such a high risk.i Agree. I'm 26, Just got approved for a $360k home loan, yet i can't get a 15k approval for a Diamond Credit Card. He surely has other assets or a third party come in to be able to obtain that much. I bought a $20k 2nd hand car 3 years ago and they wouldn't allow me to borrow that much. I have a great credit rating, whilst applying for my Home Loan, i came out with Category A.
It's a mouthful, but we have to wonder what the kid had on paper and passing through his accounts at that time.
The extent of your financial advice as parents was "if the bank gives it to you, go ahead"? Seriously, financial literacy in this country is dismal.
Out of interest, did you show your son how to calculate interest at 17% per annum, compounding monthly, on $20,000, to demonstrate how this can rapidly exceed the principal multiple times?
I cannot believe you have the audacity to blame this on the bank!
Get a 0% balance transfer card (assuming he can pass a credit check) and pay this down. Get him some financial literacy and a budget.
Check out:
http://www.vertex42.com/Calculators/Canadian-mortgage.html
Mostly suited to mortgages, but good to see the real impact of those 'extra' payments or once of payments on a mortgage…
If people knew the effect of compounding interest, I would doubt they would buy the latest car every 2 years
No Kipps we were not happy that he wanted a loan, and tried talk him out of it, but at 18 he was not listening and try to convince him we had more knowledge was pointless especially once the bank said yes. We are not a family who takes on debt lightly, and I guess he was thinking all good he will pay it back but did not have the financial maturity to see the problems it may cause him. He is affording to pay the loan now and has kept up with it for most of the two and a half years he has had it. I am just wondering if there is an option to save him some money and pay it out faster and save some dollars.
Always someone else to blame in a nanny state
i see what you did there
Fair enough, now I just want to find a cheaper option. as the bank is charging $17.9%
Bank of Parent is cheaper, but I sense that you have the same issue/s as the bank and are worried about his capacity to repay?
(if it was 100% guaranteed, you should get cash/loan - assume his loan and then charge a lower interest rate to him)Questions for you:
- What will any of the above teach him?
- What value does he place on lowering the interest rate?
(You cannot help someone, who doesn't want to help themselves)
Pay his debt off using your home loan, then have him pay you back.
You can try to approach another financial institution to refinance the personal loan. I think the lowest ones are like 10% or so.
Higher rates because of the higher risks to them.
No point blaming the bank, no one forced him to borrow the money and make minimal repayments, hopefully he will learn from this.
Not blaming the bank although they have taken on a higher risk debt which might back fire on them and they lose out as well.
So maybe they should have avoided providing such a large sum to someone who has no real capacity to repay the amount.
Plus the son is stupid. Real stupid.
To be honest, I wouldn't classify $22,000 as a large sum.
If you pay back $250 a week, it should take you ~2 years to pay it off
Id be upset if the bank refused to give that loan. 600-800 per week is 30k per annum +. When interest is only 4800. Easily serviceable. The mistake was your sons spending habits living beyond his means who knowingly decided he wanted to borrow and pay interest. Have you considered paying it off for him and having him repay you at a lower %? Win win.
I bet that the parents don't want to bail him out because they probably have concerns that he won't repay, particularly given an inability to curb expenditure.
I would hate to be given that much.
But Upset? Really….?! Wow
He is only casual.
No security and stability to his employment and ability to repay.
I'm in the exact situation as your son. Still trying to find a solution! Never again will I get a personal Loan from CBA. Lesson learnt! If you find any solutions, let me know
As others have said, dont blame the bank for your spending habits.
So ignorant.
Direct debit 95% of pay into the loan while lives off you.
Get another job to turbo charge the repayments.
Too hard I betI have a question - this thread was started in feb 2014…it is now July 2015. Does that mean he is still in crippling debt and repayments 1.5 years later?
There really are some jerks on Ozbargain, not entirely sure why. It's probably just an internet thing in general which somehow turns people into total a-holes
I am in agreement with the people who are saying a) it was pretty stupid thing to do, and b) suggesting that you give him some tough love here and make him work his way out of it. But at the same time, there's no benefit to setting your son down the wrong path so early in his life. I'm sure a bit of normal love will work here as well…maybe even something simple like sneakily paying a bit of the loan down as he goes.
I'm not advocating that you bail him out, hence dont let him know what is going on. But I do think he needs a hand, and i don't think the right answer is to abandon him. That is just crazy talk. The people who are saying this will mean he never learns…I think he will have learnt. He will feel completely stupid and pathetic and miserable enough as it is.
Maybe set some conditions? I mean you don't want to see him out partying and flashing cash around the place obviously. I know of people who have borrowed money from their parents (for e.g to go off and become an airline pilot at uni, which is not cheap) and they have set a reasonable interest rate of say 4%, and been generally fairly strict about it.
I'm saying there are ways and means around this without disowning your children
I love all the "sick it up" posts like they've never made a mistake. Back in the day, the banks wouldn't give me credit until I didn't need their credit.
Many people at this age aren't good with their finances, and unfortunately often not good at taking advice from old people either.
Hence why financial institutions are supposed to put them through the third degree before giving credit. They should make young applicants read posts like these."I love all the "sick it up" posts like they've never made a mistake."
I gather you mean suck, not sick but in answer to your question yes, I made mistakes and guess what, I sucked it up, paid the price and learned from it."Many people at this age aren't good with their finances, and unfortunately often not good at taking advice from old people either."
And they pay for their foolishness (-;"Hence why financial institutions are supposed to put them through the third degree before giving credit."
What happened to consumers using their own intelligence and judgement?
Why is it up to someone else to hold your hand every step of the way through life?
I am sick of this nanny state BS, aren't you?I am.
Financial institutions are responsible for assessing ability to service. End of story.
What next? Is coles responsible for telling you what groceries you can afford? Is the local coffee shop responsible for telling you you can't afford 3 3.50 coffees a day?
I have made mistakes, financial and otherwise and I paid the price and moved on.
I'm enjoying the nanny state brigade here. You do realise that uncontrolled lending to people who couldn't afford to repay it is one of the reasons that got us into the GFC, correct?
I'm more horrified when I see people who are 22 owning 5 houses without a real job. It only take 1 interest rate rise and a change to negative gearing, and you a totally EFFED
won't somebody think of the children!!!!
This is getting ridiculous. Lending to someone who has ability to service on a small amount is hardly "uncontrolled".
Car loan decisions are largely algorythmic (do you really think someone spends hours deciding whether to lend 20k?) and his income and history at the time would have said yes.
Bottom line is the bank did nothing wrong here and they are getting paid with some difficulty (for which they have processes).
Would you all be happier if the bank said no and motor finance wizard said yes? 'Cause I assure you he would be well and truly f#&cked if they had.
Also the reasons for the GSC were complex and in a lot of ways country specific.
Australian banks are tightly regulated and never even came close to a Leeman brothers scenario.
Sorry, not saying that the lending for a car was going to cause a crash. I don't think the bank did anything wrong here either.
I was more referring to people saying "oh well the bank should just lend money and it is up the person to be disciplined enough to know how much is too much". That is the wrong attitude.
Also saying that the way the banks lend to house investors is more uncontrolled and dangerous
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I'm sure many people would tell you, that your son has made a very stupid decision this early in his life. Especially borrowing that much to buy an asset that depreciates so much. Easiest solution is (you as the parent), pay off the loan immediately, to stop the interest, and then have your son pay you back. Can also sell off the car to finance this.