If you are struggling to make your monthly repayments on your credit accounts, speak to your lender and ask for hardship assistance. Lenders (like banks, credit unions and finance companies) are required to assess you for a hardship variation if you ask for help.
The type of assistance your lender is able to offer will depend on your circumstances, including the type of loan you have, the reasons why you’re struggling and whether those reasons are likely to continue into the future.
Importantly, your lender needs to make sure the arrangement is sustainable by you and will actually give you the opportunity to get back on track – and, if it’s likely that the cause of your financial difficulty is going to continue well into the future, the hardship arrangement won’t just simply delay the inevitable default and result in more interest being payable.
In the longer term, there’s a number of changes to your loan contract that your lender may agree to in order to help you meet your loan obligations, including reducing your repayments and extending the term of the loan.
In the shorter term, rather than varying your contract, it’s possible that your lender will offer an ‘indulgence’ in relation to your payments.
This means that, although your contract isn’t changed and your normal payments still fall due, the lender agrees not to take enforcement action in relation to payments that you miss during the period of the indulgence (sometimes this may be subject to you still making some payments; although less than your normal payments).
For example, if you had a car loan and your payments are $500 per month, the lender may agree not to take action for the next three months even though you don’t make those normal payments. Ordinarily, if you did not make your payments for three months, your lender could have cancelled the loan and repossessed the car.
The indulgence provides some breathing space during which you may be able to sort out the cause of your financial hardship (so that you can go back to making your normal payments). If the cause of your financial hardship is likely to continue into the future, the indulgence provides an opportunity for you and your lender to work out what longer term solution you need.
The government has just finished a review into how hardship arrangements should be reflected in borrowers’ credit reports. As part of this work, the review looked into how a borrower’s ‘repayment history information’ should be recorded during an ‘indulgence’ and found that the current law was not clear about how this should be reflected (and, overall, the law didn’t deal well with hardship arrangements).
As a result, the government is proposing a change to the law to make sure hardship arrangements are appropriately reflected in borrowers’ credit reports in a way that balances the interests of the borrower and credit providers (who rely on credit reports when deciding whether to lend money).
The proposed changes still need to be finalised and, once finalised, will take a year or two to implement into the credit reporting system.
In the meantime, lenders are working within the current system to make sure borrowers who ask for hardship assistance aren’t treated unfairly. As noted above, during an ‘indulgence’ your payments continue to fall due and, if not made, would ordinarily be recorded as missed in your credit report. Until the law is changed, many lenders have decided that it is a fairer to stop reporting ‘repayment history information’ during the indulgence period. This means that a borrower who has negotiated an indulgence with their credit provider due to hardship may see blanks for their repayment history information in their credit report, rather than a record of missed payments.
Remember, if you are struggling with your loan, you might want to talk to a financial counsellor. Financial counsellors work in community organisations and provide advice about credit and debt issues. Financial counselling is free, independent and confidential.
If you’ve asked your lender for hardship assistance and you’re unhappy with the lender’s response, you can complain to the lender’s external dispute resolution system.
Click here for a quick summary on the information that is reflected in your credit report. Specifically note page 2 that show you an example of what your 24-month repayment history information will look like.