Financial Hardship Q&A's
How do I apply for hardship assistance?
Speak to your lender about financial hardship assistance as soon as possible if you are:
- Struggling or finding it difficult to make repayments on your credit accounts, and/or
- Experiencing an unexpected change to your circumstances that might impact your ability to make your repayments, such as illness, loss of income, relationship breakdown, natural disaster etc.
Lenders have well-established programs to assist you if you are having financial difficulties. Remember that financial hardship can affect anyone, and lenders have experience helping their customers to get back on track.
Your lender will discuss arrangement options with you, considering:
- The type of loan or credit you have
- The reasons you are struggling to make repayments
- Whether those reasons are likely to be short or long-term.
It is important to get in touch with your lender and then work with them to find a solution.
Keep in mind though, that your lender is not obliged to agree to a financial hardship arrangement. It will depend on their assessment of your financial situation and why your repayments are overdue.
Why would my lender not agree to a financial hardship arrangement?
If you ask for financial hardship assistance, your lender will look at your circumstances to work out what sort of arrangement is best for you. Sometimes, they might not agree to enter a financial hardship arrangement, and this can happen for a couple of different reasons, such as:
- They believe that you are unlikely to meet your obligation to repay the debt (even if your payments were reduced) and won’t be able to afford to meet your commitments in the long-term. Therefore, agreeing to reduce payments temporarily, could just add to your overall debt, as more interest and fees get added to the loan.
- They feel that you’re not really experiencing financial hardship, and that while you can actually afford the loan payments, you’re instead choosing to spend money on non-essential items, rather than your credit repayments.
If a lender does not agree to a financial hardship arrangement, they must:
- Provide the reason for the decline, in writing, and
- Inform you of your right to complain to the Australian Financial Complaints Authority.
Who can see that I have been in financial hardship?
A bank, credit union or licensed finance company may be able to see whether you have been in an arrangement – but they must always have a valid reason to check your credit report. If you use a broker to help you find a loan and give them consent to check your credit report, they will also see whether you have been in a financial hardship arrangement.
What’s more, information about financial hardship arrangements only stays on your credit report for 12 months after the arrangement has finished. Therefore, if you apply for credit during that period, your credit report may prompt a potential lender to ask a few more questions to find out whether you are still experiencing hardship and if you can afford the new loan or credit.
How is financial hardship information used by lenders?
There are limits on what a lender can do with your financial hardship information, in order to protect you and your rights as a credit and/or loan customer.
For example, they’re not allowed to use financial hardship information as the sole basis for closing a credit card account or reducing its limit.
They can only use the information to help them assess your ability to manage new debts.
How long does information about financial hardship arrangements stay on my credit report?
Information about your financial hardship arrangement stays on your credit report for up to 12 months after the arrangement finishes. After that time, the arrangement data stops being shown, and it’s no longer possible to tell from your credit report that you had a financial hardship arrangement in place.
Will I still be able to access credit in the future?
It’s important to remember that asking for financial hardship arrangement does not exclude you from applying for credit in the future.
If your credit report has financial hardship information, a potential lender might just ask you for some more information about your current situation, to find out if you are still experiencing hardship and if you can afford the new loan.
In fact, negotiating a financial hardship arrangement with your lender suggests that you are a responsible borrower who is willing to work with your lender to get back on track with repayments.
Of course, no matter what has happened in the past, making your agreed repayments on time now will help you look better in the eyes of other lenders.
What if I have a hardship arrangement but still can’t make the reduced payments on time?
If your lender has agreed to lower repayments under a financial hardship arrangement, but you’re struggling to meet even those payments, it is important to talk to your lender again as soon as possible.
They can re-assess your situation and might be able to suggest a more workable arrangement.
If you don’t make the reduced payments required under the financial hardship arrangement, the missed payments will be shown as part of your repayment history.
In some circumstances, your lender might end your financial hardship arrangement early. If this happens, all the missed or deferred payments could become payable immediately. In this case, your repayment history may show that your account is very overdue.
It’s important to chat to your lender if you are continuing to struggle with repayments.
What is the difference in hardship assistance offered by different credit providers?
Your credit provider will try to offer hardship assistance that suits your individual needs. However, the way that the assistance is structured can also depend on:
- The type of credit provider
- The type of loan, and
- The type of assistance requested.
While the exact form of financial hardship assistance can vary, the new reporting system introduced in July 2022 provides greater consistency over how these arrangements are reflected on your credit report.
Importantly, no matter what type of hardship arrangement you agree to with your bank or other licensed credit provider, your repayment history will show that you are up to date if you meet the requirements of that new arrangement (even if your lender has agreed that, in the short-term, no payments are required).
How will a financial hardship arrangement reported on my credit report impact the credit I already have with other lenders?
Lenders may take different approaches, however, the law includes some important protections for how hardship assistance received from your lender can impact the credit you have with other lenders. This means that:
- A credit provider can’t cancel your credit card limit simply because there is financial hardship information in your credit report, and
- Your financial hardship information will not be given to a credit provider if they ask for your credit report purely to collect overdue payments.
How do I avoid having negative repayment history reported at the end of a temporary financial hardship arrangement?
A temporary financial hardship arrangement does not cancel or reduce your overall debts, it simply defers your normal loan repayments. Therefore, it’s likely that, at the end of the arrangement, your loan repayments will still be in arrears.
So, make sure you get in touch with your lender before the end of a temporary financial hardship arrangement. That way, you can discuss options to deal with those unpaid amounts before the arrangement comes to an end – for example, paying off the deferred payments over an extended period.
This will help to avoid having negative repayment history information recorded at the end of the arrangement.
Does hardship assistance for my rent and phone bill show on my credit report?
No. The information about financial hardship arrangements is only recorded on your credit report if your repayment history is also being recorded for that debt.
Businesses that provide other credit, such as phone, internet, gas, and electricity companies, can’t provide your repayment history to credit reporting bodies. So, if you enter a financial hardship arrangement with these businesses, it won’t be shown on your credit report.
However, if you are struggling to make payments, it’s still important to talk to your phone, internet, gas, and electricity company. Missed payments for those accounts could eventually result in a default or even a court order, which would be recorded on your credit report.
So, even though the actual hardship arrangement with your telco or utilities company won’t appear on your credit report, the agreement can help prevent a default or court order from being recorded.
What if I enter a financial hardship arrangement on a joint debt?
Lenders can agree to a financial hardship arrangement with one account holder of a joint account, however they may contact the other accountholders, or at least notify them that the agreement has been put in place.
That’s because a financial hardship arrangement agreed to by one account holder will be shown on the credit report for all joint accountholders.
There are some exceptions though. This particularly happens if the account holder applying for the financial hardship assistance subject to domestic abuse and is worried that another account holder may threaten or harm them because of the financial hardship information. In this case, the credit provider can choose not to show history or financial hardship information during the arrangement.
What if I have missed payments or need to enter hardship because of domestic or economic abuse?
Talk to your lender as quickly as possible and explain your circumstances to them. In the case of domestic or economic abuse, there may be additional steps your lender can take to help you.
What happens to my credit report if I get my debt waived?
If the debt has been waived (i.e., the lender has cancelled the remaining debt), your credit report should show that the account is closed, and the last month’s repayment history will show the account as up to date.
There will also be financial hardship information shown for that last month to reflect the waiver. If there is an agreement to waive the debt – including a part-payment followed by a waiver – there should be no default recorded (unless it was recorded before the debt was waived).
How do I ensure the hardship arrangement in place will resolve all the arrears? Will I need to refinance at the end, or can I catch up on payments over time?
The type of hardship assistance you agree to with your lender should reflect your individual circumstances.
Some hardship arrangements will allow you to temporarily defer payments for a short time – but these deferred payments will still be owing at the end of the agreed period.
You should talk to your lender about how to resolve those deferred payments in a way that is achievable for you. This could involve letting you catch-up over time, extending the timeframe of your loan, or some other method.
Is a hardship arrangement better than a negative repayment history?
Absolutely. If you are struggling to make your payments, it is important to recognise that a history of repeated missed payments can make it harder for you to get credit in the future. If missed payments continue, it could even result in a default being recorded on your credit report.
Will a hardship arrangement reduce my credit score?
No, a hardship arrangement will not reduce your credit score. Under the law, financial hardship information cannot be used by a credit reporting body to calculate a credit score.
Seeking financial hardship assistance also does not exclude you from applying for credit in the future.
If your credit report has financial hardship information, a potential lender may ask you for more information about your current situation to understand whether you are still experiencing hardship and if you can afford the loan or credit account.
No matter what has happened over the last 12 or 24 months, making your agreed repayments on time now will help you look better to other lenders in the future. Financial hardship information will remain on your credit report for 12 months after the final repayment is made under the arrangement.