The heavy flooding in New South Wales this month of March, left many Australians in financial hardship as a result of the damages to property and possessions. While there are financial assistance available to help flood victims recover from the disaster, they also need to seek solutions that would lessen the monthly payments due on their home mortgage and/or car loan, while still working toward financial recovery. One such solution is to negotiate for a hardship loan modification with the lender as a way to prevent one’s loan from going under water as well.
What is a Hardship Loan Modification?
In Australia, there are laws that enable consumers to seek relief from financial distress after sustaining damages caused by a natural calamity. Through a hardship loan modification arrangement, a consumer who purchased items on finance like a car, can negotiate with the loan provider for a temporary pause on payments, or for a reduction of monthly payments
The purpose of a hardship loan modification is to workout an affordable finance that will make monthly loan payment less difficult for the borrower. That way, while going through financial difficulties and working toward improving a financially troubled condition, a borrower will have more time to settle his loan at reduced payments; instead of seeing his loan balloon with the addition of past due interest and penalty charges.
The National Credit Code and the National Consumer Protection Act of 2009 are examples of laws that empower Australian consumers to negotiate for a hardship variation of a car loan. Moreover there are industry codes that require lenders to work with borrowers seeking for a hardship variation on their car loan.
While lenders cannot refuse to consider an application for a hardship loan modification, they have their own set of standards for determining if a borrower qualifies for approval of such a request. In most cases, lenders require financial documentation as proof to determine if the borrower has real need to have his financial obligation modified.
Some Examples of Hardship Loan Modifications to Negotiate with a Lender
The National Loans Australian gives some examples of hardships loan modifications that a car loan borrower may negotiate with a lending institution. As these are only examples, a lender could offer other options aside from the following:
Extension of the loan term in order to reduce the monthly payments but only for a short duration; along with schedules for gradual increases at some future date until such time that the arrears have been paid.
Reducing the monthly payments without changing the term of the loan, but with larger payments due on some future dates until an up-to-date payment status is achieved.
Hardship Loan Modification is Not the Same as a Loan Refinance
National Loans Australia points out that a hardship loan modification is different from a loan refinancing deal.
A refinance can be negotiated with another lender in case a borrower is not amenable to the modifications offered. Besides, banks and financing institutions usually require partial payment of the principal and interests as part of a refinance scheme. That way, only the remaining balance will go forward under new terms and conditions and with reduced amounts of monthly payments.