COVID-19 Payment pause impact on credit reports
Australians impacted by COVID-19 may be able to access a further four-month payment pause or deferral on their loan repayments from their lenders to help them get back on track – but that will not be automatic and consumers need to consider their options carefully.
At the end of the current and any future payment deferral or any other form of assistance received, if you continue to be severely financially impacted and are unable to make your normal repayments, keep in contact with your lender so you can together determine the best long-term solution for your own circumstances.
What does it mean for your credit report?
It is important to understand how the form of assistance received and consumer choices impact credit reports.
Your credit report includes your repayment history information which is a 24-month view of whether you pay your loan and credit accounts on time.
If you have been granted COVID-19 assistance from your lender, a payment pause / deferral will usually not be reported as a late or missed payment in your credit report. Instead, repayment history during the pause period will usually be reported as “up to date” or will be blank, often depending on whether you were up to date with repayments at the start of the payment pause or were already in arrears.
At the end of a payment pause, your repayment history might be reported differently depending on the how you and your lender intend to get you back on track with repayments.
How does a payment pause or deferral work?
If you have agreed with your lender on a payment pause or deferral, you won't have to make repayments on principal nor interest for up to 6 months, or a bit longer if you need your pause extended and your lender agrees.
During this time, it is important to understand your loan is not 'frozen': interest will usually still accrue and will be added to the balance of your loan. This means the longer the pause, the more interest will accumulate.
Once regular repayments begin again, there are several options you can discuss with your lender:
- increase your ongoing repayments to pay off the deferred payments in the remaining life of your loan
- extend the life of your loan so your ongoing repayments stay the same
- a broader change to your loan that could include a mix of the above or even a new loan to consolidate your existing loans.
What if I can't resume repayment at the end of the pause?
Keep in contact with your lender. Before the end of the pause, think about whether you are able to restart payments, or if a change to your contract or product would help.
Let your lender know:
- if your financial situation is not improving,
- if you expect to earn less income,
- if you need additional time to get back on track.
Resist the temptation to use more credit to cover loan payments. This can lead to a 'debt spiral' where a small debt can quickly become much larger and unmanageable.
The more you communicate with your lender, the easier you can agree on a manageable solution.
For information on how banks and other lenders are supporting their customers that are impacted by COVID-19, click here.