Facing a repayment squeeze? Speak to your lender before the next bill becomes a crisis
- Written by: The Times
With the Reserve Bank’s next interest rate decision approaching, borrowers worried about meeting repayments should understand their financial hardship options—and seek help early.
For a household already balancing mortgage repayments, electricity bills, groceries and insurance, another interest rate increase could leave very little room to move.
The Reserve Bank will announce its next decision on Tuesday, November 3, at 2.30pm AEDT. A rise is not a settled outcome. But borrowers concerned about their ability to manage repayments do not need to wait for the announcement before contacting their lender.
Financial institutions have processes for customers experiencing financial hardship. Depending on the circumstances, assistance can include temporarily reducing repayments, postponing payments or changing loan terms.
These arrangements are intended to help borrowers manage financial difficulty. They require discussion and assessment; they are not an automatic entitlement to a particular repayment reduction.
Make contact before falling further behind
The practical first step is to contact the lender’s financial hardship team.
ASIC’s Moneysmart guidance encourages borrowers struggling with their mortgage to seek help early, when more options may be available.
Borrowers should explain what has changed, how much they can realistically afford to pay and whether the difficulty is likely to be temporary or ongoing. Having loan details, income figures and major expenses ready can make that conversation more productive.
A borrower does not need to understand banking terminology to start the discussion. A clear statement is enough: “I am concerned I cannot meet my repayments and want to discuss financial hardship assistance.”
For consumer credit covered by the National Credit Code, a hardship notice can be given verbally or in writing.
Understand what the arrangement will cost
A smaller repayment can provide immediate breathing space. Borrowers should also understand what happens afterwards.
Before accepting an arrangement, ask whether interest will continue to accrue, whether deferred amounts will be added to the balance, whether the loan term will change and what repayments will be required when the assistance ends.
A payment pause should not be assumed to mean an interest pause or debt forgiveness.
The central question is whether the arrangement is affordable both during the relief period and afterwards. Agreeing to a payment that the household cannot sustain risks postponing the same problem.
Moneysmart advises borrowers to negotiate repayments they can realistically afford and to contact the lender again promptly if the new arrangement becomes unmanageable.
Lenders have obligations to respond
For consumer credit covered by the National Credit Code, lenders must follow response requirements.
Where the lender has enough information to assess a hardship notice, it generally has 21 days to notify the borrower of its decision. If additional information is needed, different timeframes apply, including 21 days to respond after receiving the requested information.
If the lender refuses to change the contract, it must explain its reasons and provide information about the borrower’s right to complain to the Australian Financial Complaints Authority.
Borrowers should keep copies of correspondence and notes of conversations, including any agreed payments and review dates.
Seeking assistance and your credit record
Concern about a credit score can discourage people from asking for help.
Moneysmart states that a financial hardship arrangement does not affect a borrower’s credit score. The credit report will show that an arrangement exists, with that listing deleted after 12 months.
That does not mean every aspect of a borrower’s credit history disappears or that future credit approval is guaranteed. Borrowers should ask their lender how the proposed arrangement and repayments will be reported.
Free help is available
Borrowers who need help assessing their budget or speaking with creditors can contact the National Debt Helpline on 1800 007 007 for free financial counselling.
If a disagreement with a lender cannot be resolved, AFCA provides a free complaints service. It can consider matters including declined hardship requests and failures to respond. AFCA can be contacted on 1800 931 678.
Business owners should also seek assistance early. However, AFCA cautions that small businesses do not have the same statutory hardship rights as individual consumer borrowers. Assistance may still be available, including under the Banking Code of Practice where applicable.
The Small Business Debt Helpline, 1800 413 828, is another source of support.
Whatever the Reserve Bank decides next week, households already experiencing repayment difficulty have reason to act now.
Contacting a lender will not resolve every financial problem. It can begin a process that is much harder to manage once unanswered bills and missed repayments accumulate.
Disclaimer. This article is general information. Prior to making any finance related decision, obtain advice from a licensed financial professional.
