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How do I change the terms of my loan?

You will need to write a letter to your lender asking them to vary the terms of your loan due to hardship. In order to succeed in getting your loan changed you will need to show:

  • the reason for your current financial hardship
  • that you will be able to meet the payments if the loan is changed.
  • Prepare to write the letter

    1. Find a copy of the original loan contract and any changes that have been made to it since you first took out the loan, like any money you have redrawn or if you have refinanced. If you don’t have a copy, write to your lender asking for this information. See the sample letter in Sample documents and forms.
    2. Find out exactly what you owe including any arrears on the loan. These are the payments you may have missed.
    3. Gather any documents or notices you received about the loan.
    4. Make a list of your dealings with the lender (in the order in which they happened) and brief notes of what happened.
    5. Work out what caused your financial problems and the date the problems started.
    6. Estimate when you expect your financial circumstances to improve and why.
    7. Work out what you can afford to pay on your loan by calculating your income and expenses. See the sample budget in Sample documents and forms as a guide to working out your income and expenses.
    8. List any extra money such as a tax return or other lump sum you expect to receive, and the date you expect to receive it.
    9. Work out a plan to get you back on track. Any plan you come up with must be practical and achievable. Don’t ask your lender for a plan you cannot follow. Some suggestions for your plan include:
      • temporarily reducing or stopping payments for a set time and then making extra payments or a lump sum later to catch up
      • extending the term of the loan and therefore reducing payments or stopping them for a set time
      • authorising a lump sum that is due to come to you to be paid directly to the lender (called an ‘irrevocable authority’—see Sample documents and forms) to bring you up to date on your loan contract.

    How to write the letter

    Note: Your plan must be clear and logical. Your lender is unlikely to accept a proposal that merely delays the inevitable.

    The lender does not have to consider your proposal, but if they don’t, you could use this as evidence in court, or in an EDR scheme, of an unreasonable attitude.

    See the sample letter in Sample documents and forms.

    1. Start by saying you want to change the terms of the contract under sections 72–75 of National Credit Code. Even if your loan agreement or lease is not regulated by the National Credit Code, you can still request a variation of the loan due to hardship; it just means you can’t take the lender to court or an EDR scheme if they refuse you.
    2. Explain why you are experiencing temporary hardship, for example, you had a work accident or your work hours were reduced.
    3. Explain when you expect your situation to improve.
    4. Make a proposal to your lender about reducing or postponing payments or extending the term of the loan. Your proposal will need to show you can reduce the principal debt, not just pay the interest. Make it very clear how you will catch up or meet your obligations under the contract.
    5. Tell the lender you will assume they have agreed to your proposal unless they contact you with another suggestion by a certain date.
    6. Close the letter politely and give phone numbers where you can be contacted.

    Your lender’s response

    If your lender agrees to your request, ask them to confirm their agreement in writing. Keep this correspondence in case you need to use it later.

    If the lender refuses your request, under the National Credit Code you have the right to take the matter either to court or to an EDR scheme. EDR schemes are
    a cheaper option than court as they are free for consumers and there is no risk of costs being awarded against you.

    If you go to court you will have to pay legal costs. This can be difficult if you are already suffering from financial hardship. Be aware that once the court makes a judgment about your matter, your rights to make a hardship application to an EDR scheme are severely restricted.

    Lenders may also have obligations under a Code of Practice to help you when you are in hardship or financial difficulty. These Industry Codes of Practice have hardship obligations for lenders:

    1. Clause 28 of the Australian Bankers Association Code of Banking Practice
    2. Clause 24 of the Customer Owned Banking Code of Practice
    3. Mortgage and Finance Association of Australia Code of Practice.

    You can complain to the Australian Financial Complaints Authority when a lender does not follow the Code of Practice they have subscribed to. The lender cannot start court proceedings against you while your complaint is with the Australian Financial Complaints Authority. Contact:

    The Australian Financial Complaints Authority
    1800 931 678
    www.afca.org.au

    The Australian Financial Complaints Authority is the new EDR scheme that has replaced the FOS and the CIO from 1 November 2018. You retain the same rights to complain about your lender’s conduct if they do not properly consider your hardship request.

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