Consumer credit legislation in Australia allows for variations to the terms and conditions for loan contracts taken out for personal, household, or domestic purposes, if your circumstances change due to unemployment, illness or some other reasonable change in your circumstances.
If you entered into your loan agreement after July 1 2010, or if your debt relates to credit card, then you can also seek variations to the terms and conditions for loans taken out for purchasing, renovating or improving residential property for investment purposes. Both lenders and debt collectors are required to consider variations to repayment arrangements.
If you are experiencing financial difficulty, you can request a hardship variation if you think you could manage your loan if the monthly payments were reduced or changed in another way.
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What credit hardship payment plans can you ask for?
You can contact your lender or debt collector by phone or letter and request the following types of loan variations:
- a reduction of your regular payments to a more affordable level and a consequent extension to the term of your loan; or
- a short-term stop on payments, and a consequent extension to the term of your loan; or
- a short-term stop on payments, after which you will catch up the missed payments.
The particular variation you ask for will depend on which is the most affordable to you, taking into account that any extension to the term of the loan will mean higher interest costs for the overall loan.
You can ask for a stop on interest charges, but your creditor is not obliged to agree to comply with your request.
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How to ask for a credit hardship variation
If you wish to ask for hardship consideration, it is always better to put your request in writing as this means you can keep a copy of the request as a record. It is more difficult to prove the details of a request made by phone. If you entered into your loan agreement after July 1 2010, or if your debt relates to a credit card, then your credit provider must respond to you within 21 days of your application.
Find out more information on:
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How much can you afford to pay?
Prior to asking a lender or debt collector for a hardship variation you should work out how much you can afford to pay in your current circumstances. To do this review your income and expenses and prioritise your bills and debts according to their importance in getting you through this period of reduced income.
You will then be able to draw up a debt management plan and know how much you can realistically afford to pay off each of your debts. Remember to retain some money for emergencies. If you make the mistake of committing to pay more than you can afford, you will not be able to stick to the agreement you have entered.
You might ask your lender or debt collector for a new payment plan though they will be less likely to agree if you have not been able to keep up on one payment plan already.
You should seek help from a financial counsellor regarding the options available to you to manage your debts.
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Benefits of a credit hardship payment plan
If your lender or debt collector agrees to a variation, you will obtain the following benefits:
- your payments will become more affordable in the short-term
- letters of demand and phone calls from your creditor or their debt collector requesting payment will stop for as long as you keep to the arrangement
- your lender will not usually notify any default to the credit reporting agency if you have contacted them early and set up a payment plan. This will mean the debt will not be reflected in your credit rating and you will not be disadvantaged when you apply for credit in the future.
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Disadvantages of a credit hardship payment plan
If your lender agrees to a variation, you will have to consider the following disadvantages:
- unless you have negotiated a stop on interest a changed payment plan may turn out to be very expensive in the long-term and may mean you go further into debt;
- where the arrangement consists of reduced monthly payments and a longer loan term, you will be effectively paying interest for longer for the same loan amount. The overall cost of the loan will therefore be higher.
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If your lender or debt collector doesn’t agree to a hardship payment plan
Although legally required to consider your request for flexible payment arrangements, your lender or debt collector is not obliged to agree to any hardship variation proposal you put forward.
If your lender either refuses your proposal or fails to respond to your request for consideration within 21 days, (or a shorter time if your situation is urgent) you can lodge a complaint with your credit provider's independent dispute resolution scheme.
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Further information
MoneyHelp step-by-step guide: 
How to ask for a credit hardship variation by phone (MoneyHelp Step by step guide)(Word 28kb)
MoneyHelp sample letter: Request for a credit hardship variation (MoneyHelp Letter 1)(Word 31kb)