Credit hardship variation

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 then you should ask your lender for a hardship variation.

If you entered into your loan agreement after July 1 2010, then you can also seek a variation for a loan taken out for purchasing, renovating or improving investment residential property. Both lenders and debt collectors are required by law 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.

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 variation:

  • 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: or
  • any other variation (if you loan was advanced after March 2013).

The particular variation you ask for will depend on which is the most suitable for you. For example, if you are receiving less pay because of reduced hours, a permanent reduction in instalments may be the best option.


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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.

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How much can you afford to pay?

Before 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 variation

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; and
  • 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 report and you will not be disadvantaged when you apply for credit in the future.

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Disadvantage of a credit hardship variation

Where the arrangement consists of reduced monthly payments and a longer loan term, you will be 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 and request a hardship variation from the relevant industry ombudsman service.

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