Factsheet No. 2
Hardship Variations to Loan Repayments
This factsheet looks at how you may be able to vary your loan repayments under the Consumer Credit Code if you find yourself in a situation of hardship.
You should also look at our factsheet called Negotiating with Creditors.
If you are unable to make repayments on your loan because of:
- illness;
- unemployment; or
- other reasonable cause
you may apply to the credit provider (that is, the organisation that lent you the money) to change your loan agreement.
Eligibility for a hardship variation
You can only apply for a hardship variation if:
1. the Consumer Credit Code applies to your contract, that is:
- credit has been provided to you,
- a credit charge (interest) has been levied,
- your loan is for personal purposes not business purposes,
- you signed the contract on or after 1 November 1996;
- you have not signed a "Business Purposes" declaration;
- (see the Factsheet "Does the Consumer Credit Code Apply?" at www.cclcnsw.org.au for further details on whether or not the Consumer Credit Code applies.).
2. court proceedings have not been commenced;
3. you meet the hardship variation requirements, that is
- You are suffering a temporary inability to pay,
- you can prove that if the loan agreement is changed as you request, you will ultimately be able to repay the entire loan and
- the amount borrowed does not exceed 110% of the average loan amount for the purchase of new dwellings in NSW. This amount varies from month to month and ranged from $298,100 to $340,940 between November 2004 and June 2005. For the current figure refer to the Consumer Credit Code Website - What's New - Hardship Threshold.
The types of hardship variations
A hardship variation can only alter the loan agreement in the following ways:
- by extending the length of your contract which reduces the amount of each repayment (but does not change the interest rate);
- postponing your repayments (without a change being made to the annual percentage rate); or
- both extending the length of your loan AND postponing your repayments for a specified period (without a change being made to the annual percentage rate).
How to apply for a hardship variation
To apply for a hardship variation you must write to the credit provider and ask them to extend your loan and reduce or postpone your repayments as soon as you are unable to make the repayments specified in your contract. Many credit providers will agree to a hardship variation at this point, if the hardship variation requirements of the Consumer Credit Code have been met. For further assistance see: "Sample Letter: Request for Hardship Variation" at www.cclcnsw.org.au.
If the credit provider agrees to the hardship variation it must give you a written notice setting out..
- particulars of the change in the terms of the credit contract; and
- any information required by the regulations.
If the credit provider refuses the hardship variation application you may make an application to the Consumer Trader and Tenancy Tribunal (in NSW) which has the power to order the credit provider to make the variation you have requested. Such an application must be made as soon as possible. For further information see: "Guide: How to Apply for a Hardship Variation in the Consumer Trader and Tenancy Tribunal" at www.cttt.nsw.gov.au
More information
Contact your local State Department of Fair Trading/Consumer Affairs or local Community Legal Centre for more information.