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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 varied or changed.
Prepare to write the letter
- 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 sample letters page.
- Find out exactly what you owe including any arrears on the loan. These are the payments you may have missed.
- Gather any documents or notices you received about the loan.
- Make a list of your dealings with the lender (in the order in which they happened) and brief notes of what happened.
- Work out what caused your financial problems and the date the problems started.
- Estimate when you expect your financial circumstances to change for the better and why.
- Work out what you can afford to pay on your loan by calculating your income and expenses. See sample letters page for how to do this.
- List any extra money such as a tax return or other lump sum that you expect to receive, including the date you expect to receive it.
- Work out a plan to get you back on track. You could:
- temporarily reduce or stop payments for a set time and then make extra payments or a lump sum later to catch up
- extend the term of the loan and therefore reduce payments or stop them for a set time
- authorise a lump sum that is due to come to you to be paid directly to the lender (called an irrevocable authority — see sample letters page) to bring you up to date on your loan contract.
How to write the letter
See sample letters page.
- Start by saying you want to change the terms of the contract under s. 66 of the Consumer Credit Code. Even if your loan agreement or lease is not regulated by the Consumer 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 if they refuse you.
- Explain why you are experiencing temporary hardship, for example, you had a work accident or your work hours were reduced.
- Explain when you expect your situation to improve.
- Make a proposal to your lender about reducing or postponing payments or lengthening 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.
- Tell the lender you will assume they have agreed to your proposal unless they contact you with another suggestion by a certain date.
- 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, you have the right, under the Consumer Credit Code, to take the matter to court.
If your lender is a member of the Mortgage and Finance Association of Australia then the lender has obligations to you under a Code of Practice. The Mortgage and Finance Association Code of Practice says the lender must tell you about its hardship policies if it becomes aware you are in financial difficulty. Read the relevant section from the Code of Practice on the The Mortgage and Finance Association code of practice page.
You can complain to the Credit Ombudsman Service when a lender, who is a member of the Mortgage and Finance Association of Australia, does not follow the Code of Practice. The lender cannot start court proceedings against you while your complaint is with the Credit Ombudsman Service. Contact the Credit Ombudsman Service on 1800 138 422 or visit http://www.creditombudsman.com.au/