Written byFinancial hardship is when a change in your circumstances, such as job loss or illness, means you cannot meet your loan, credit or bill repayments on time.
Also known as: financial hardship, financial difficulty, hardship assistance, hardship variation
Key points
- Temporary hardship usually leads to a payment pause or reduced repayments; long-term hardship may need restructuring or refinancing.
- Under the National Credit Code, providers must assess hardship requests fairly, ask only for necessary information and give written reasons for a refusal.
- An agreed arrangement shows as financial hardship information for up to 12 months, not as missed payments or a default.
- A refused or mishandled request can be escalated through the lender's internal dispute resolution, then AFCA, or the OAIC for credit reporting errors.
- Contacting the lender early, before arrears build up, gives you the widest range of options.
What lenders must do
The National Consumer Credit Protection framework, ASIC's guidance on fair treatment and AFCA's approach to disputes all set expectations for how a hardship request is handled. The lender must consider the request on the information you give rather than dismiss it, ask only for what it needs (proof of income, expenses or medical evidence), and give its decision within 21 days of the hardship notice, or within 21 days of receiving further information it has asked for.
If the answer is no, or only partly yes, you are entitled to written reasons. Lenders are expected to keep records of requests, assessments and outcomes, which matters if you later complain, and to consider reasonable variations such as deferrals, reduced payments or term adjustments. These obligations apply to credit regulated by the National Credit Code. Business-purpose loans sit outside it, although Banking Code subscribers and most lenders still have hardship policies.
Common forms of hardship assistance
What is offered depends on the product and your situation. A payment pause or deferral postpones minimum payments for a short period. Reduced payments lower the instalment for a set time. A repayment schedule variation extends the term or changes the frequency to bring instalments down. Lenders can also waive late fees or give interest relief for the hardship period, capitalise missed payments onto the loan balance (which increases total interest), or move you to a different product through consolidation or refinancing.
Your lender does not have to offer every option, but it must consider reasonable and proportionate measures. A pause does not always stop interest accruing, so ask for the financial effect in writing before agreeing.
Credit reporting and how to ask
An agreed arrangement is recorded on your credit report as financial hardship information, which shows the months it applied and is removed after 12 months. It does not show as a missed payment or a default and does not reduce your credit score. A listing made in breach of an arrangement can be corrected through the lender, then AFCA or the OAIC, and incorrect hardship information can also be a privacy breach.
A good request is short and specific: the account details, what caused the hardship and when it started, how long you expect it to last, your current income and essential expenses, and the arrangement you propose. Keep copies of everything, note the date you sent it and ask for written acknowledgement. Guarantors can raise hardship where their obligations are affected.
Not to be confused with
- Default
- a default is what the lender records when repayments are missed and not cured; a hardship arrangement, agreed and kept to, is meant to prevent one
- Debt counselling
- debt counselling is the free service that can help you prepare and negotiate a hardship request; hardship assistance is what the lender grants
- Debt adjusting
- debt adjusting is negotiating with creditors on a debtor's behalf, a regulated credit activity; a hardship variation is one you agree directly with your own lender
Frequently asked questions
Will a hardship arrangement affect my credit score?
No. An agreed arrangement is recorded as financial hardship information, which shows the months it applied, is removed after 12 months and does not reduce your credit score. If an incorrect missed payment or default appears, dispute it through the lender's complaints process, then AFCA or the OAIC.
How long does a lender have to respond to a hardship request?
For a National Credit Code contract the credit provider must give its decision within 21 days of the hardship notice. If it asks for more information, the 21 days runs from when it receives that. Other credit types depend on the lender's policy or the Banking Code, so follow up in writing and keep a record.
Can a guarantor ask for hardship?
In some circumstances, yes. A guarantor can raise hardship concerns where their arrangement specifically allows it or where their obligations are affected by changes to the borrower's arrangement. Check the guarantor agreement and the loan contract, and discuss the options with the credit provider or a financial counsellor.
Does interest stop during a payment pause?
Not always. Some pauses simply defer payments while interest keeps accruing, and capitalising missed payments onto the balance increases the total interest over the life of the loan. Ask the lender to confirm the financial effect of any variation in writing before you agree to it.
What proof do I need for a hardship request?
Enough to show what changed and how long it is likely to last: payslips or Centrelink statements, a list of essential living expenses, and for illness a medical certificate or letter from your treating practitioner. Lenders can ask for necessary evidence but not for irrelevant or excessive information.
Related terms
Broader term: Default
Default
A default is a borrower's failure to meet the terms of a credit contract, usually by missing repayments, which lets the lender demand the balance and enforce its security.
Read definitionArrears
Arrears are overdue repayments on a loan or credit account: the borrower has missed instalments, which the lender tracks by days past due and which can lead to a default.
Read definitionDebt counselling
Debt counselling is a free, confidential service, known in Australia as financial counselling, that helps people in financial difficulty build a realistic budget and negotiate hardship arrangements with creditors.
Read definitionDebt adjusting
Debt adjusting is any arrangement that changes what a debtor owes or when they pay it, from an informal hardship variation through to a debt agreement or bankruptcy.
Read definitionRefinancing
Refinancing is replacing an existing loan with a new one, from the same or a different lender, to change the interest rate, term or features, or to release equity.
Read definitionDebt consolidation loan
A debt consolidation loan is a personal loan used to pay out several existing debts, such as credit cards and payday loans, leaving one repayment.
Read definitionGo deeper
Sources
This article is general information only and is not financial advice.