Understanding Financial Hardship: A Guide for Borrowers

Understanding Financial Hardship: A Guide for Borrowers

Facing financial hardship can be a stressful and overwhelming experience and it can be difficult understanding financial hardship. Unexpected events, such as a job loss, illness, or an unforeseen emergency, can make it difficult to meet your financial commitments. If you find yourself in this situation, it’s important to know that there are options available to help you manage your obligations and find a solution that works for you.

This article is a guide for borrowers that provides a comprehensive overview to help you understand financial hardship, explains how to identify it, and outlines the steps you can take to seek assistance. By understanding your rights as a borrower and the support available, you can take proactive steps to address your financial challenges and regain control over your finances.

What Is Financial Hardship?

Financial hardship occurs when you are unable to meet your financial obligations, such as loan repayments or bills, due to unexpected or difficult circumstances. These circumstances can vary widely, but common causes include:

• Job loss or reduction in income: A sudden loss of employment or reduced hours can significantly impact your ability to make loan repayments.
• Health issues: Serious illness or injury can prevent you from working or create unexpected medical expenses.
• Personal crises: Events like the death of a family member, separation or divorce, or other significant personal challenges can create financial strain.
• Increased/ Unexpected emergencies: Large, unexpected costs such as car repairs, home damage, or other unforeseen expenses including rising living costs can quickly drain your finances.

Recognising when you’re in financial hardship is the first step to getting the support you need.

Signs of Financial Hardship

It’s important to identify the signs of financial hardship early. Some common signs include:

• Missing loan repayments: Inability to make scheduled repayments on time or struggling to pay the minimum amounts is a clear sign of financial difficulty.
• Struggling with everyday expenses: Finding it hard to afford essential costs such as rent or mortgage payments, utilities, food, or transportation due to loan commitments may be a sign of hardship.
• Unable to cover unexpected expenses: Emergencies such as a medical issue or home repair may force you into debt if you are unable to make your regular loan payments.
• Accumulating debt: Use of credit cards or taking out new loans to cover existing debts can be a sign that your financial situation may be unsustainable.

If you notice any of these signs, it’s important to act quickly to address the issue and avoid worsening your financial situation.

Steps to Take If You’re Experiencing Financial Hardship

If you are facing financial hardship, there are steps you can take to address the situation. Taking action early can help prevent missed payments, late fees, and damage to your credit score. Here’s what you can do:

1. Contact Your Lender Immediately

The first thing you should do is contact your lender as soon as you realise you are facing financial difficulty. Lenders are generally willing to help borrowers in hardship, especially if they are notified early. Being open and honest about your situation will help your lender understand the full picture and work with you to find an appropriate solution.

When you contact your lender, be prepared to:

• Explain your situation: Let them know why you are experiencing financial hardship, whether it’s due to job loss, health issues, or another factor.
• Provide details of your financial position: Lenders may ask you to outline your income, expenses, and any changes to your financial situation. Some may ask for supporting documents, such as proof of income or a medical certificate if relevant.

2. Request Hardship Assistance

When you reach out to your lender, request specific assistance. The types of support they can offer vary depending on your situation and the type of loan, but common options include:

• Reduced repayments: Your lender may agree to reduce your monthly repayments for a period, which can make your debt more manageable during tough times.
• Temporary deferral of payments: In some cases, you may be able to temporarily pause your repayments for a few months.
• Extended loan term: By extending the length of your loan, your monthly repayments may be reduced, which can ease your financial burden.
• Interest rate reductions: Some lenders may offer to lower your interest rate, making your loan repayments more affordable.

Lenders are required to assess your situation and provide reasonable assistance where possible. The options available will depend on the type of loan and your individual circumstances, but most lenders will work with you to find a solution that is fair and sustainable.

3. Provide Supporting Documentation if Required

Lenders may request supporting documents as part of the hardship application process. These may include:

• Proof of income (e.g., payslips, tax returns, or bank statements)
• Medical certificates (if health-related issues are impacting your ability to work)
• Evidence of job loss or reduced work hours
• A statement of your financial position outlining your income and expenses

Providing clear and accurate documentation will help your lender assess your situation fairly and offer an appropriate solution.

4. Understand Your Rights and Protections

As a borrower experiencing financial hardship, you have specific rights that ensure you are treated fairly. Lenders are required to consider your situation and provide assistance where possible. If your lender refuses to offer help or does not respond to your request in a reasonable time, you have the right to:

• Request a review of their decision: If you feel that the response from your lender is unfair or inadequate, you can ask them to review their decision.
• Seek external help: If you’re unable to resolve the issue directly with your lender, you may be able to seek external help through the Australian Financial Complaints Authority (AFCA) via http://www.afca.org.au or 1800 931 678. This can help ensure that your concerns are addressed in a fair and impartial manner.

5. Seek Professional Advice

If you are struggling to manage your finances, consider seeking advice from a financial counsellor. They can provide guidance on budgeting, debt management, and other financial matters.

Additional Resources:

• ASIC’s Moneysmart website – https://moneysmart.gov.au/
• A comprehensive website with information on financial matters, including managing debt and seeking help during financial hardship.
• National Debt Helpline – 1800 007 007 or website https://ndh.org.au/ A free financial counselling service that can provide personalised advice and support.

6. Consider Other Financial Options

In addition to seeking hardship assistance, it may be worth exploring other financial options that could help ease your burden, such as:

• Debt consolidation: If you have multiple debts, consolidating them into one loan with a lower interest rate could make it easier to manage your repayments.
• Government assistance programs: You may be eligible for government benefits or assistance programs that can help provide temporary financial relief, e.g.
  • Services Australia website – https://www.servicesaustralia.gov.au/
    • Information about government support payments (e.g. JobSeeker, Rent Assistance, and Crisis Payments).
• Financial counselling: A financial counsellor can help you assess your situation, create a budget, and develop a strategy for managing your debt.

The Importance of Early Action

One of the most important steps you can take when facing financial hardship is to act early. The sooner you reach out to your lender and seek assistance, the more options will be available to you. Delaying action or ignoring the problem can lead to missed payments, late fees, and damage to your credit rating, making it harder to recover financially.

By taking proactive steps and communicating with your lender, you can work together to find a solution that helps ease your financial burden and gets you back on track.

Conclusion

Financial hardship is a challenging experience, but there are options available to help you manage your debt and regain control of your finances. If you are struggling to meet your loan obligations, it’s important to reach out to your lender as soon as possible to request hardship assistance. By being open about your situation and working with your lender to find a solution, you can alleviate some of the pressure and work toward a more stable financial future.

Remember, there is no shame in seeking help. Many lenders are willing to offer support during difficult times, and understanding your rights and available options is the first step to overcoming financial hardship.